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This misses the main driver. Valuations are no longer based on growth. The entire market has shifted to profitability over growth. Companies with a stronger

by di456 4y ago

This misses the main driver. Valuations are no longer based on growth. The entire market has shifted to profitability over growth. Companies with a stronger balance sheet coming out of the recession will be better positioned for the long term. Seems that companies that gained their valuations through growth weren't sustainable in the long run. And at a macro level, economic policy has largely deferred recessions since the 2008 housing bubble pop. That's not sustainable either. At some point a correction is going to happen. The "social contagion" is companies betting that a correction is coming. Some made that bet early, and some are just now hopping on the train. It's about survival for many companies. I bet we'll see fire sales, and acquisitions ramping up for the financially stronger companies.

btown 4y ago
The market shifting to profitability over growth was the motive, absolutely. But Elon's decimation of Twitter was the means and opportunity. And I think that copycatting those means of executing layoffs - 7am email notifications for 20-year employees, minimal consultation with lower-level management about who should be retained - will have significant ramifications on the morale of the remaining workforce. Perhaps some of it was unavoidable to avoid media leaks. But a lot of how all this was executed reflects a massive lack of empathy.
- oxfordmale 4y ago
  The layoffs without consultation with the lower levels will indeed leave a bitter taste. It gives the impression that hard work isn't awarded if the top management level has no visibility over your work. This will result in departments spending much more time selling their work, rather than actually doing the work. In the end, this is counterproductive for a company.
  - hinkley 4y ago
    If you’ve never been in a layoff where you lost someone you trust as much as you trust yourself, it’s a terrible experience that may come to define your time at the company. If they can lay “Dave” off they can lay any of us off. What if I’m next? Or god what if you’re next? I do not want your job and they’ll make me do it if you’re gone. I have to be very careful in meetings now, save 95% of my political capital for self preservation, not team benefit. Not company benefit. You might have a few people who double down and say if this isn’t working we have to try something radically different. But Cassandra is often in the first round of layoffs. Nobody wants to listen to people second guess them so you’re out first. After that, no more ideological fights get won from that point forward. The entire team is in free fall, just trying to do enough to look good and hoping the market corrects before the wheels come off.
    - AtlasBarfed 4y ago
      Cassandra the db or the mythical figure?
      - hinkley 4y ago
        The mythical figure.
    - I_AM_A_SMURF 4y ago
      Yep. My previous company laid off so many people that were _clearly_ better than me. In multiple rounds too, it was horrible. I couldn't not stop looking behind my back I had to find a different job.
- jurassic 4y ago
  I can't wait for Elon's Twitter to fully crater so brainless Wall Street people will stop trying to emulate his approach to cost reduction. It's obvious to everyone paying attention that Elon destroyed that company in the first 30 days and it's only a matter of time until bankruptcy. It blows my mind that anybody could see his approach as an example to emulate.
  - I_AM_A_SMURF 4y ago
    Unfortunately it could be that Twitter survives long enough to be handed off to a saner CEO which restores some sanity. I don't know how many non-tech people would notice if Twitter doesn't ship anything for a year.
- di456 4y ago
  Twitter isn't mentioned in the article but completely agree that its new CEO does not have a reputation for acting rationally or with empathy. Personally if my employer was acquired by him or his companies I'd shart shopping for a new job immediately.
33955985 4y ago
Yeah. I’m a bit confused on how an article on layoffs misses the massive increase in cost of capital. The entire market has changed.
- tw20212021 4y ago
  How is the 'massive' increase in cost of capital affecting Google, a company making 60bln profit a year from mostly services?
  - sokoloff 4y ago
    Google’s customers are going to reduce their investment (including ad spend) as a result of the increased cost of capital and changing economics of their business as the next recession looms large (or has already started). Arguing that Google had a good 2022 is only tangentially relevant to Google’s prospect for the upcoming decade.
  - rsj_hn 4y ago
    I will assume you are asking in good faith, so here goes. What you think of as "profit" -- e.g. just some random, arbitrary, completely free bonus that Google should be grateful to have at all -- is actually the cost of capital for Google. It is a payment to equity, and the amount of the payment is determined by the interest rate as well as the time path of expected future earnings, adjustment for risk, and other factors. The presence of these other confounding factors often confuse people and make them think profits are arbitrary. They are not. Just because something is complex doesn't mean it is random. Now when the interest rate increases, that required payment goes up, because investors always have a choice of buying a share of google or buying a bond, and if the bond pays 7%, then buying a share of google should also give you 7%. Now, that 7% could be taken as future growth, as a number of things, but it still needs to be competitive with the bond, which is itself set by government policy in setting interest rates for the economy in such a way as to limit inflation. So we see that companies paying employees a lot of money without actually generating profits is related to inflation. Stop and think about it. Recently, the government has not been doing a very good job of this and has set the rates -- the payments -- too low, causing inflation to be too high. It's now trying to correct, raise the rates, and so the required cost of capital -- the required profits of companies like Google -- have to increase. Now suppose Google doesn't do that, e.g. it says "these profits are enough and you should be glad to have them". What investors do is say "well, I'd rather buy the bond" and so they sell their google shares and buy bonds, and in this way the value of Google falls up until the profit rate (profits divided by market price) is compatible with the bond. Well, so what? If Google shares sell for a dollar, who cares, since all that matters is that there be no layoffs, right? Well, when the market share falls below the liquidation value of the company, investors buy up the outstanding shares and liquidate the company. But long before that, there are lot of mechanisms -- e.g. stock options, voting on the corporate board -- that are designed to encourage decision makers to be aligned with the interests of shareholders so that you generally do not see companies trading for less than their scrap value for very long. And this does not need to happen to the whole company, most will scrap unprofitable divisions and projects and not stick their heads in the sand and wait for the whole company to be scrapped. What's an example of a company that has a ton of unprofitable projects? Hmm, one such name comes to mind. So now we see why, when interest rates go up, businesses struggle to increase their profit margins -- and those that do not go out of business. It is no different for the farmer that needs to earn a higher return on his crop when interest rates rise, so the business needs to earn higher margins when interest rates rise as well. The higher interest rates cause a reduction in investment, which generates a reduction in spending and they incentivize more savings (deferral of spending), and in this way they reduce inflation, which everyone is complaining about as it hurts workers' standard of living.
lapcat 4y ago
> It's about survival for many companies. Google? Microsoft? Amazon? Those companies are in no danger of dying.
ascotan 4y ago
Cutting people as a form of making companies more profitable doesn't work as per the article.
- di456 4y ago
  Speculation, but maybe companies as a whole aren't great at repurposing employees from working on growth projects to working on profit generating projects. Which executive wants to add more headcount expenses to their P&L responsibilities, without a compensating increase in revenue? There's a lot of internal politics that are likely insurmountable for most companies. Especially big companies that are inflexible and are hard to course correct.
lamontcg 4y ago
> This misses the main driver. Valuations are no longer based on growth. The entire market has shifted to profitability over growth. Could have written this in 2001 or 2008 and it wasn't true then, and it probably isn't true now.
- di456 4y ago
  It's cyclical

by di456 4y ago

btown 4y ago

The market shifting to profitability over growth was the motive, absolutely. But Elon's decimation of Twitter was the means and opportunity. And I think that copycatting those means of executing layoffs - 7am email notifications for 20-year employees, minimal consultation with lower-level management about who should be retained - will have significant ramifications on the morale of the remaining workforce. Perhaps some of it was unavoidable to avoid media leaks. But a lot of how all this was executed reflects a massive lack of empathy.

oxfordmale 4y ago
The layoffs without consultation with the lower levels will indeed leave a bitter taste. It gives the impression that hard work isn't awarded if the top management level has no visibility over your work. This will result in departments spending much more time selling their work, rather than actually doing the work. In the end, this is counterproductive for a company.
- hinkley 4y ago
  If you’ve never been in a layoff where you lost someone you trust as much as you trust yourself, it’s a terrible experience that may come to define your time at the company. If they can lay “Dave” off they can lay any of us off. What if I’m next? Or god what if you’re next? I do not want your job and they’ll make me do it if you’re gone. I have to be very careful in meetings now, save 95% of my political capital for self preservation, not team benefit. Not company benefit. You might have a few people who double down and say if this isn’t working we have to try something radically different. But Cassandra is often in the first round of layoffs. Nobody wants to listen to people second guess them so you’re out first. After that, no more ideological fights get won from that point forward. The entire team is in free fall, just trying to do enough to look good and hoping the market corrects before the wheels come off.
  - AtlasBarfed 4y ago
    Cassandra the db or the mythical figure?
    - hinkley 4y ago
      The mythical figure.
  - I_AM_A_SMURF 4y ago
    Yep. My previous company laid off so many people that were _clearly_ better than me. In multiple rounds too, it was horrible. I couldn't not stop looking behind my back I had to find a different job.
jurassic 4y ago
I can't wait for Elon's Twitter to fully crater so brainless Wall Street people will stop trying to emulate his approach to cost reduction. It's obvious to everyone paying attention that Elon destroyed that company in the first 30 days and it's only a matter of time until bankruptcy. It blows my mind that anybody could see his approach as an example to emulate.
- I_AM_A_SMURF 4y ago
  Unfortunately it could be that Twitter survives long enough to be handed off to a saner CEO which restores some sanity. I don't know how many non-tech people would notice if Twitter doesn't ship anything for a year.
di456 4y ago
Twitter isn't mentioned in the article but completely agree that its new CEO does not have a reputation for acting rationally or with empathy. Personally if my employer was acquired by him or his companies I'd shart shopping for a new job immediately.

33955985 4y ago

Yeah. I’m a bit confused on how an article on layoffs misses the massive increase in cost of capital. The entire market has changed.

tw20212021 4y ago
How is the 'massive' increase in cost of capital affecting Google, a company making 60bln profit a year from mostly services?
- sokoloff 4y ago
  Google’s customers are going to reduce their investment (including ad spend) as a result of the increased cost of capital and changing economics of their business as the next recession looms large (or has already started). Arguing that Google had a good 2022 is only tangentially relevant to Google’s prospect for the upcoming decade.
- rsj_hn 4y ago
  I will assume you are asking in good faith, so here goes. What you think of as "profit" -- e.g. just some random, arbitrary, completely free bonus that Google should be grateful to have at all -- is actually the cost of capital for Google. It is a payment to equity, and the amount of the payment is determined by the interest rate as well as the time path of expected future earnings, adjustment for risk, and other factors. The presence of these other confounding factors often confuse people and make them think profits are arbitrary. They are not. Just because something is complex doesn't mean it is random. Now when the interest rate increases, that required payment goes up, because investors always have a choice of buying a share of google or buying a bond, and if the bond pays 7%, then buying a share of google should also give you 7%. Now, that 7% could be taken as future growth, as a number of things, but it still needs to be competitive with the bond, which is itself set by government policy in setting interest rates for the economy in such a way as to limit inflation. So we see that companies paying employees a lot of money without actually generating profits is related to inflation. Stop and think about it. Recently, the government has not been doing a very good job of this and has set the rates -- the payments -- too low, causing inflation to be too high. It's now trying to correct, raise the rates, and so the required cost of capital -- the required profits of companies like Google -- have to increase. Now suppose Google doesn't do that, e.g. it says "these profits are enough and you should be glad to have them". What investors do is say "well, I'd rather buy the bond" and so they sell their google shares and buy bonds, and in this way the value of Google falls up until the profit rate (profits divided by market price) is compatible with the bond. Well, so what? If Google shares sell for a dollar, who cares, since all that matters is that there be no layoffs, right? Well, when the market share falls below the liquidation value of the company, investors buy up the outstanding shares and liquidate the company. But long before that, there are lot of mechanisms -- e.g. stock options, voting on the corporate board -- that are designed to encourage decision makers to be aligned with the interests of shareholders so that you generally do not see companies trading for less than their scrap value for very long. And this does not need to happen to the whole company, most will scrap unprofitable divisions and projects and not stick their heads in the sand and wait for the whole company to be scrapped. What's an example of a company that has a ton of unprofitable projects? Hmm, one such name comes to mind. So now we see why, when interest rates go up, businesses struggle to increase their profit margins -- and those that do not go out of business. It is no different for the farmer that needs to earn a higher return on his crop when interest rates rise, so the business needs to earn higher margins when interest rates rise as well. The higher interest rates cause a reduction in investment, which generates a reduction in spending and they incentivize more savings (deferral of spending), and in this way they reduce inflation, which everyone is complaining about as it hurts workers' standard of living.

lapcat 4y ago

> It's about survival for many companies. Google? Microsoft? Amazon? Those companies are in no danger of dying.

ascotan 4y ago

Cutting people as a form of making companies more profitable doesn't work as per the article.

di456 4y ago
Speculation, but maybe companies as a whole aren't great at repurposing employees from working on growth projects to working on profit generating projects. Which executive wants to add more headcount expenses to their P&L responsibilities, without a compensating increase in revenue? There's a lot of internal politics that are likely insurmountable for most companies. Especially big companies that are inflexible and are hard to course correct.

lamontcg 4y ago

> This misses the main driver. Valuations are no longer based on growth. The entire market has shifted to profitability over growth. Could have written this in 2001 or 2008 and it wasn't true then, and it probably isn't true now.

di456 4y ago
It's cyclical