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wrong view / comparios ... in a 5% interest rate environment, companies fight for investors money .. if you don't do the cuts and find a way to be efficient inv

wrong view / comparios ... in a 5% interest rate environment, companies fight for investors money .. if you don't do the cuts and find a way to be efficient investors will put their money somewhere else that's more profitable. this reasoning is pure and simple and correct, you start from the top, not from the fact "they can afford it" because their job is not to spend the money they have their job is to increase value for investors.

Aeolun 4y ago
> their job is to increase value for investors Is their job to increase it in the short or the long term? These “I know we’ve been doing great for 3 years, but the past 3 months haven’t been so hot, so we’re going to cut jobs.” Messages seem incredibly shortsighted.
- pbhjpbhj 4y ago
  Do investors sell if they company income falls for a quarter? I'm guessing yes, and that answers the question of whether the company looks to the short term when seeking only to satisfy investors. The whole system is wrong.
  - Aeolun 4y ago
    Why would the company care if the investors sell? They’ll happily buy again when things are looking up. Only when things are going so terrible that the board is trying to get you replaced is when it becomes important. If the board aims to replace you because of a bad quarter in a bad economy… find a different company to be CEO of I guess.
    - ikiris 4y ago
      Because a huge part of their compensation both to themselves and their employees is floated stock.
      - pas 4y ago
        That doesn't explain it. It might be a factor, but it's not a big factor. FAANG jobs pay extremely well and then there's the stock on top. Is the vast majority working at these companies (with years of vesting, no?) so shortsighted? Especially the higher ups? Is it a requirement at these companies that you have to be 10000% in debt and living paycheck-to-paycheck to be a SVP/VP/director/whatever so you have to be hyper-focused on that stock comp? It's just ridiculous. (And note, I'm not saying it's not a factor, it might be, but it's just not the full picture.)
        danaris 4y ago
        It's taken on a life of its own at this point. The idea that the quarterly stock price is The One And Only Metric That Matters arose for various reasons related to what was mentioned, but over the years it's become so ingrained in the minds of executives and other wealthy people that even when those conditions don't specifically apply, they still act as though they do.
        htrp 4y ago
        Amazon cash comp was capped in the low 100s IIRC.
        sangnoir 4y ago
        > FAANG jobs pay extremely well and then there's the stock on top. When excluding RSUs, FAANG jobs are not extreme in any way. RSUs are not a cherry on top but an important component of remuneration. Often for mid-level and above (roughly TL/staff engineer and Manager-II), the value of RSUs is more than 50% of total compensation.
        pas 4y ago
        tech/IT salaries are very high compared the median income of the country/region. and FAANG base salaries are top of that, so ... I would say they are infact extreme. and then there's stock on top.
        ikiris 4y ago
    - kgwgk 4y ago
      Who is "the company"? From your comment it seems that you consider that the board is not part of it.
  - beezle 4y ago
    Always forgotten: for every seller there must be a buyer. Generally speaking, unless there is a fundamental change in outlook, selling based upon the latest earnings report is the hot money which attempts to chase the latest greatest and is moving on (and rarely tells you about their misses).
  - s1artibartfast 4y ago
    investors care about long term profits. If they magically knew that income would fall this quarter and 2X next quarter, the price would go up. The challenge is that they dont have magic powers to see into the future. If a company income is falls this quarter without a compelling reason such as investment, this data indicates that the company will not do good next quarter. The are tons of examples of company stock prices increasing due to a acquisition, despite a lower quarterly profit.
- christophilus 4y ago
  Public companies have an incentive to focus on the short term (quarterly reports). This really makes a difference in management behavior. Bill Clinton and Warren Buffett have both talked about this, and presented regulatory approaches to fixing it, but here we are.
  - mensetmanusman 4y ago
    Clinton’s attempt was so watered down it accelerated executive pay increases: https://ips-dc.org/wp-content/uploads/2016/08/IPS-report-on-CEO-bonus-loophole-embargoed-until-Aug-31-2016.pdf https://ips-dc.org/wp-content/uploads/2016/08/IPS-report-on-...
  - hgsgm 4y ago
    > Public companies have an incentive to focus on the short term (quarterly reports). Why? Incentivized by whom? This is choice they make. See the OP.
    - NickC25 4y ago
      Incentivized by the stock market. If you go on an investor call as the CEO and said, "hey we didn't make any profits this quarter because we invested it all into projects that will grow our revenue X% in the next quarter or half" you'll get fired by the board very quickly, or an activist fund will buy up shares and vote you out as quickly as they can.
anothernewdude 4y ago
> if you don't do the cuts and find a way to be efficient investors will put their money somewhere else that's more profitable. A company that is cutting staff is creatively bankrupt and has clearly no idea where to spend effort in anything new. I wouldn't invest in a company that is reducing headcount in this manner.
- sokoloff 4y ago
  You’ll be holding a lot of your investments outside of stocks for a while, then.
  - anothernewdude 4y ago
    Apple stock is good. I think you have a biased view of companies that is heavily weighted towards the tech companies you see in the news.
  - IX-103 4y ago
    In this market, is that really a bad idea?
    - sokoloff 4y ago
      Broad sentiment tends to lag share performance. (aka "be fearful when others are greedy and greedy when others are fearful")
notahacker 4y ago
This might be true of a lot of companies, but then you look at others like Waymo where the revenue is pure projection, the relationship between staff numbers and having a workable product unknown and the pile of cash available to fund it not requiring any borrowing, and it looks suspiciously like trend following (with maybe a bit of actually self driving cars are further off than we thought but, hey, not our mistake because everyone else is doing layoffs too thrown in)...
- grey-area 4y ago
  It’s not trend following, it is genuine existential fear, particularly someone like waymo - With 0% rates money is free and you can take forever to make a profit, nobody cares, just borrow more money if you run out. With 5% rates money is expensive and you have say 2 years to make a profit or everyone loses their job and investors lose their funds. This doesn’t really apply to massive companies like google or MS of course but it does to anyone smaller without a cash cushion (the majority). Now job cuts may or may not be the right decision but they are triggered by very real and urgent fears about plummeting earnings.
  - notahacker 4y ago
    I picked Waymo because unlike some startups losing staff obviously isn't the route to profitability for it, and it started off as a Google-branded project backed by the near unlimited cash reserves of Google. If they're in a position where they're not confident of getting further support from that source, I don't think IRR calculations over a 2 year time horizon are the main factor there.
    - grey-area 4y ago
      IRR calculations, profit, value actually matter again because the risk free rate has dramatically gone up and will stay up, after a decade where they didn't matter. Cheap money has distorted the entire market and conditioned a generation of investors to expect unreasonable returns and to ignore the price, revenue, profit and loss.
    - 4y ago
SturgeonsLaw 4y ago
Let's do a little root cause analysis. Why do companies like Google, Microsoft and Amazon, with massive income streams combined with substantial cash holdings, need investor money? Maybe Toyota's "Five Why's" can shed some light on it. We need to fire thousands of people. Why? Because it will make us more attractive for investors. Why? So they put their money in our company. Why? Because that will buoy our stock price, which is important. Why? Because it makes shareholders richer. Oh.
- Yoric 4y ago
  True but oversimplified a little. Because that will buoy our stock price, which is important. Why? Because our stock price is also our operational funds. How comes? Because our actual funds are invested somewhere else. Why? Because it makes shareholder richer. Oh.
  - pas 4y ago
    is that really true? or is it because a large portion of the global revenue is "parked" outside the US for tax reasons? or due to stock buyback there are not much "funds" at all?
    - dsparkman 4y ago
      Yeah, most of these companies park their cash outside the US to avoid having to pay taxes, then borrow money in the US against their assets/stock. It worked great when interest rates were essentially zero. Not so much now.
  - pjc50 4y ago
    > our stock price is also our operational funds. .. no it isn't? This is conflating "equity" with "free cash". Have a look at one of the balance sheets.
    - Yoric 4y ago
      I may very well be misunderstanding some of this. However, until now, it has been my understanding that the way any large company works is by using their stock value as collateral against short term investments from banks, which then serve as operational funds. Am I wrong?
pjc50 4y ago
It's necessary to divide the companies making layoffs into "profitable" and "unprofitable". It is much easier to make the case for layoffs at an unprofitable company: eventually it will either have to appeal to investors or run out of money, at which point everyone will be laid off anyway. But the big tech companies are actually profitable. Even Amazon. https://www.wsj.com/market-data/quotes/AMZN/financials/annual/income-statement https://www.wsj.com/market-data/quotes/AMZN/financials/annua... They put $470 billion through the till and ended up with $33 billion net income, for a margin of 7%. That's a normal profitable company, albeit a huge one that continues to eat the remaining retail world. You can look at the quarterly results too, but there's nothing in the rear view mirror that justifies layoffs.
loudmax 4y ago
A lot of middle and upper management pays lip service to increasing value for the investors, but they don't really care for the investors any more than they care for their employees or their customers. It's better for them to be paid in cash and be ready to jump ship at the first sign of trouble than the much riskier course of counting on long term growth of their present company.
Temporary_31337 4y ago
I agree- someone with money can simply put it in bonds or a savings account. To invest in a company it has to promise to return more than the 5% per annum
s1artibartfast 4y ago
To be fair, stock price for large profitable big companies has almost nothing to do with investment money. When someone buys a stock, the company doesn't see any of that money. The real driver is shareholder returns. The shareholders would rather make more money than provide more jobs / run a charity. Maybe you were saying the same thing, but the companies don't see the new investor money, other investors /owners do

Aeolun 4y ago

> their job is to increase value for investors Is their job to increase it in the short or the long term? These “I know we’ve been doing great for 3 years, but the past 3 months haven’t been so hot, so we’re going to cut jobs.” Messages seem incredibly shortsighted.

pbhjpbhj 4y ago
Do investors sell if they company income falls for a quarter? I'm guessing yes, and that answers the question of whether the company looks to the short term when seeking only to satisfy investors. The whole system is wrong.
- Aeolun 4y ago
  Why would the company care if the investors sell? They’ll happily buy again when things are looking up. Only when things are going so terrible that the board is trying to get you replaced is when it becomes important. If the board aims to replace you because of a bad quarter in a bad economy… find a different company to be CEO of I guess.
  - ikiris 4y ago
    Because a huge part of their compensation both to themselves and their employees is floated stock.
    - pas 4y ago
      That doesn't explain it. It might be a factor, but it's not a big factor. FAANG jobs pay extremely well and then there's the stock on top. Is the vast majority working at these companies (with years of vesting, no?) so shortsighted? Especially the higher ups? Is it a requirement at these companies that you have to be 10000% in debt and living paycheck-to-paycheck to be a SVP/VP/director/whatever so you have to be hyper-focused on that stock comp? It's just ridiculous. (And note, I'm not saying it's not a factor, it might be, but it's just not the full picture.)
      - danaris 4y ago
        It's taken on a life of its own at this point. The idea that the quarterly stock price is The One And Only Metric That Matters arose for various reasons related to what was mentioned, but over the years it's become so ingrained in the minds of executives and other wealthy people that even when those conditions don't specifically apply, they still act as though they do.
      - htrp 4y ago
        Amazon cash comp was capped in the low 100s IIRC.
      - sangnoir 4y ago
        > FAANG jobs pay extremely well and then there's the stock on top. When excluding RSUs, FAANG jobs are not extreme in any way. RSUs are not a cherry on top but an important component of remuneration. Often for mid-level and above (roughly TL/staff engineer and Manager-II), the value of RSUs is more than 50% of total compensation.
        pas 4y ago
        tech/IT salaries are very high compared the median income of the country/region. and FAANG base salaries are top of that, so ... I would say they are infact extreme. and then there's stock on top.
      - ikiris 4y ago
  - kgwgk 4y ago
    Who is "the company"? From your comment it seems that you consider that the board is not part of it.
- beezle 4y ago
  Always forgotten: for every seller there must be a buyer. Generally speaking, unless there is a fundamental change in outlook, selling based upon the latest earnings report is the hot money which attempts to chase the latest greatest and is moving on (and rarely tells you about their misses).
- s1artibartfast 4y ago
  investors care about long term profits. If they magically knew that income would fall this quarter and 2X next quarter, the price would go up. The challenge is that they dont have magic powers to see into the future. If a company income is falls this quarter without a compelling reason such as investment, this data indicates that the company will not do good next quarter. The are tons of examples of company stock prices increasing due to a acquisition, despite a lower quarterly profit.
christophilus 4y ago
Public companies have an incentive to focus on the short term (quarterly reports). This really makes a difference in management behavior. Bill Clinton and Warren Buffett have both talked about this, and presented regulatory approaches to fixing it, but here we are.
- mensetmanusman 4y ago
  Clinton’s attempt was so watered down it accelerated executive pay increases: https://ips-dc.org/wp-content/uploads/2016/08/IPS-report-on-CEO-bonus-loophole-embargoed-until-Aug-31-2016.pdf https://ips-dc.org/wp-content/uploads/2016/08/IPS-report-on-...
- hgsgm 4y ago
  > Public companies have an incentive to focus on the short term (quarterly reports). Why? Incentivized by whom? This is choice they make. See the OP.
  - NickC25 4y ago
    Incentivized by the stock market. If you go on an investor call as the CEO and said, "hey we didn't make any profits this quarter because we invested it all into projects that will grow our revenue X% in the next quarter or half" you'll get fired by the board very quickly, or an activist fund will buy up shares and vote you out as quickly as they can.

anothernewdude 4y ago

> if you don't do the cuts and find a way to be efficient investors will put their money somewhere else that's more profitable. A company that is cutting staff is creatively bankrupt and has clearly no idea where to spend effort in anything new. I wouldn't invest in a company that is reducing headcount in this manner.

sokoloff 4y ago
You’ll be holding a lot of your investments outside of stocks for a while, then.
- anothernewdude 4y ago
  Apple stock is good. I think you have a biased view of companies that is heavily weighted towards the tech companies you see in the news.
- IX-103 4y ago
  In this market, is that really a bad idea?
  - sokoloff 4y ago
    Broad sentiment tends to lag share performance. (aka "be fearful when others are greedy and greedy when others are fearful")

notahacker 4y ago

This might be true of a lot of companies, but then you look at others like Waymo where the revenue is pure projection, the relationship between staff numbers and having a workable product unknown and the pile of cash available to fund it not requiring any borrowing, and it looks suspiciously like trend following (with maybe a bit of actually self driving cars are further off than we thought but, hey, not our mistake because everyone else is doing layoffs too thrown in)...

grey-area 4y ago
It’s not trend following, it is genuine existential fear, particularly someone like waymo - With 0% rates money is free and you can take forever to make a profit, nobody cares, just borrow more money if you run out. With 5% rates money is expensive and you have say 2 years to make a profit or everyone loses their job and investors lose their funds. This doesn’t really apply to massive companies like google or MS of course but it does to anyone smaller without a cash cushion (the majority). Now job cuts may or may not be the right decision but they are triggered by very real and urgent fears about plummeting earnings.
- notahacker 4y ago
  I picked Waymo because unlike some startups losing staff obviously isn't the route to profitability for it, and it started off as a Google-branded project backed by the near unlimited cash reserves of Google. If they're in a position where they're not confident of getting further support from that source, I don't think IRR calculations over a 2 year time horizon are the main factor there.
  - grey-area 4y ago
    IRR calculations, profit, value actually matter again because the risk free rate has dramatically gone up and will stay up, after a decade where they didn't matter. Cheap money has distorted the entire market and conditioned a generation of investors to expect unreasonable returns and to ignore the price, revenue, profit and loss.
  - 4y ago

SturgeonsLaw 4y ago

Let's do a little root cause analysis. Why do companies like Google, Microsoft and Amazon, with massive income streams combined with substantial cash holdings, need investor money? Maybe Toyota's "Five Why's" can shed some light on it. We need to fire thousands of people. Why? Because it will make us more attractive for investors. Why? So they put their money in our company. Why? Because that will buoy our stock price, which is important. Why? Because it makes shareholders richer. Oh.

Yoric 4y ago
True but oversimplified a little. Because that will buoy our stock price, which is important. Why? Because our stock price is also our operational funds. How comes? Because our actual funds are invested somewhere else. Why? Because it makes shareholder richer. Oh.
- pas 4y ago
  is that really true? or is it because a large portion of the global revenue is "parked" outside the US for tax reasons? or due to stock buyback there are not much "funds" at all?
  - dsparkman 4y ago
    Yeah, most of these companies park their cash outside the US to avoid having to pay taxes, then borrow money in the US against their assets/stock. It worked great when interest rates were essentially zero. Not so much now.
- pjc50 4y ago
  > our stock price is also our operational funds. .. no it isn't? This is conflating "equity" with "free cash". Have a look at one of the balance sheets.
  - Yoric 4y ago
    I may very well be misunderstanding some of this. However, until now, it has been my understanding that the way any large company works is by using their stock value as collateral against short term investments from banks, which then serve as operational funds. Am I wrong?

pjc50 4y ago

It's necessary to divide the companies making layoffs into "profitable" and "unprofitable". It is much easier to make the case for layoffs at an unprofitable company: eventually it will either have to appeal to investors or run out of money, at which point everyone will be laid off anyway. But the big tech companies are actually profitable. Even Amazon. https://www.wsj.com/market-data/quotes/AMZN/financials/annual/income-statement https://www.wsj.com/market-data/quotes/AMZN/financials/annua... They put $470 billion through the till and ended up with $33 billion net income, for a margin of 7%. That's a normal profitable company, albeit a huge one that continues to eat the remaining retail world. You can look at the quarterly results too, but there's nothing in the rear view mirror that justifies layoffs.

loudmax 4y ago

A lot of middle and upper management pays lip service to increasing value for the investors, but they don't really care for the investors any more than they care for their employees or their customers. It's better for them to be paid in cash and be ready to jump ship at the first sign of trouble than the much riskier course of counting on long term growth of their present company.

Temporary_31337 4y ago

I agree- someone with money can simply put it in bonds or a savings account. To invest in a company it has to promise to return more than the 5% per annum

s1artibartfast 4y ago

To be fair, stock price for large profitable big companies has almost nothing to do with investment money. When someone buys a stock, the company doesn't see any of that money. The real driver is shareholder returns. The shareholders would rather make more money than provide more jobs / run a charity. Maybe you were saying the same thing, but the companies don't see the new investor money, other investors /owners do