7 ms·

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,

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?
    - RhodesianHunter 4y ago
      In the case of all of the companies in question here, yes you are wrong. They have significant amounts of free cash flow and cash on hand.
      - lumost 4y ago
        However the also use that equity as compensation. Google without RSUs would not pay much better then any other large company.
        RhodesianHunter 4y ago
        The equity used as compensation is purchased during stock buybacks and is wholly divorced from investors buying and selling stocks.
      - Yoric 4y ago
        My bad. Thanks for correcting me. It looks like I cannot delete or amend my post, which is a shame.
      - deleted 4y ago
        [deleted]
    - pjc50 4y ago
      You might have seen that in the crypto space, but no normal bank is going to work like that: the only point at which collateral becomes relevant is if the debtor can't pay the loan back, i.e. they're bankrupt, in which case the equity is worthless. Corporate loans will be either unsecured (companies have lots of unsecured short term debt: every single invoice sitting unpaid in accounts payable is a debt!) or secured on something physical in the way that car loans and mortgages are. You occasionally get debt-to-equity swaps in near-bankruptcy situations. There was a certain amount of "borrow against funds held in Ireland to avoid US repatriation taxes" done by Apple, but that wasn't using stock as security, that was using cash of a different subsidiary.
- Yoric 4y ago
  According to other comments, while the above above holds true for some companies, this is not the case of FAANG. Unfortunately, it is apparently too late for me to edit or delete my comment, so it shall remain posted on HN for all eternity.
bootsmann 4y ago
And they didn't think about making shareholders richer the years before when they hired all these people or how do you explain that process?
- vooffle 4y ago
  The economy, consumer confidence and investor mood changed. The way you make investors richer changes depending on inflation.
  - zwily 4y ago
    Well, interest rates. But that’s driven by inflation.
  - MomoXenosaga 4y ago
    Do people on HN not read history books? This has happened countless times before. Or was it assumed that those in the tech industry were a "protected" class of people for whom the rules do not apply? Hell one of the best things about capitalism: everyone is equal before the dollar and everyone is expendable.
    - hypertele-Xii 4y ago
      And expend you they shall. Faster and longer and cheaper, unless a union demands otherwise. https://en.wikipedia.org/wiki/Triangle_Shirtwaist_Factory_fire https://en.wikipedia.org/wiki/Triangle_Shirtwaist_Factory_fi...
    - agentultra 4y ago
      Everyone that is disadvantaged by not holding any of the power is expendable. And expend those in power will do in order to do the bidding of their investors and keep their compensation + bonuses well padded out. You never see CEO’s take pay cuts, lose compensation, or executive teams get, “right sized.” It’s always the workers who get the shaft first. Given that a lot of this is driven by a hedge fund, isn’t this how IBM was gutted back in the day?
- 4y ago
noisy_boy 4y ago
Thats four whys.
benj111 4y ago
But the b2b sourdough app is a potential driver of future growth. Yes it may help the bottom line today, but getting rid of employees today lowers future growth potential. Investors know this. Investors would also question why there are layoffs in an apparently healthy company. All this means that CEOs don't want to do mass layoffs which even more strongly raises the question of why they did it to start with.
- IX-103 4y ago
  When the executives start co-opting the language of hedge fund managers while refusing to answer whether the open letters from hedge fund managers prompted the layoffs, the answer is pretty clear. Who else uses the term "right-sizing" and considers how being laid off "provides an opportunity to build resilience"?
- edgyquant 4y ago
  Tech investors already think that these companies over hire and the current environment is pumping up that sentiment
chmod600 4y ago
"need investor money?" There exist large private companies; how do they behave differently? I could imagine it going either way, depending on the owners, employees, and all kinds of other factors.
- lovich 4y ago
  Private doesn’t necessarily mean they have no investors, just that it’s not publicly traded securities used as the investment vehicle
overrun11 4y ago
The median shareholder in Microsoft, Google and Amazon is likely a lower economic class than the median employee at these corporations if I had to guess. The framing of ordinary workers getting the boot so fat cats can buy bigger yachts is seductive but I can just as easily frame it as: Fixed income, middle America boomers entrusted these companies to be good stewards of their capital but it was instead spent on paying high six figure salaries to coastal city professionals from elite schools to do work of dubious value.
- jujugoboom 4y ago
  This is such a poor faith argument that completely ignores any reality. These companies have had a massive last decade or so, and if what you're saying is really the case, then we would see booming levels of wealth in middle america among the elderly. Instead, we see most wealth going to the richest of Americans, with the lions share of wealth created during the last 2 years of resurgent economic boom going to the top 1% of Americans, not the fixed income middle america boomers who are currently dying because they can't afford to keep living on social security.
  - overrun11 4y ago
    > we would see booming levels of wealth in middle america among the elderly. I'd be interested to see evidence but I suspect we did see this? Retirement portfolios and housing prices (where the majority of elderly wealth is) ballooned. > Instead, we see most wealth going to the richest of American The elderly are the richest Americans so this is consistent with the elderly getting wealthier.
    - jujugoboom 4y ago
      Retirement accounts are largely a benefit enjoyed by those well-enough off to have them [1], as well as owning a home. So while yes, these indicators have increased, it only speaks to how the bulk of wealth created since 2008 has gone to mostly well-off individuals. And while yes, wealth is overall heavily weighted to older generations, it does not change the fact that the only people who are rich are the rich, regardless of age. While most wealthy people are boomers, most boomers are not wealthy. If you look at economic insecurity (200% FPL), the elderly in America are over-represented, with a rate of about 33% compared to ~27% overall[2]. [1] https://www.census.gov/library/stories/2022/08/who-has-retirement-accounts.html https://www.census.gov/library/stories/2022/08/who-has-retir... [2] https://ncoa.org/article/get-the-facts-on-economic-security-for-seniors https://ncoa.org/article/get-the-facts-on-economic-security-...
xapata 4y ago
Who are the shareholders? Pension funds, which ensure a decent retirement for a large portion of US residents. Index funds, in which many people have invested their retirement funds.
mook 4y ago
I think the last answer is a bit off. … Why? Because that will buoy our stock price, which is important. Why? Because a significant portion of executive compensation is in stocks.

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?
  - RhodesianHunter 4y ago
    In the case of all of the companies in question here, yes you are wrong. They have significant amounts of free cash flow and cash on hand.
    - lumost 4y ago
      However the also use that equity as compensation. Google without RSUs would not pay much better then any other large company.
      - RhodesianHunter 4y ago
        The equity used as compensation is purchased during stock buybacks and is wholly divorced from investors buying and selling stocks.
    - Yoric 4y ago
      My bad. Thanks for correcting me. It looks like I cannot delete or amend my post, which is a shame.
    - deleted 4y ago
      [deleted]
  - pjc50 4y ago
    You might have seen that in the crypto space, but no normal bank is going to work like that: the only point at which collateral becomes relevant is if the debtor can't pay the loan back, i.e. they're bankrupt, in which case the equity is worthless. Corporate loans will be either unsecured (companies have lots of unsecured short term debt: every single invoice sitting unpaid in accounts payable is a debt!) or secured on something physical in the way that car loans and mortgages are. You occasionally get debt-to-equity swaps in near-bankruptcy situations. There was a certain amount of "borrow against funds held in Ireland to avoid US repatriation taxes" done by Apple, but that wasn't using stock as security, that was using cash of a different subsidiary.
Yoric 4y ago
According to other comments, while the above above holds true for some companies, this is not the case of FAANG. Unfortunately, it is apparently too late for me to edit or delete my comment, so it shall remain posted on HN for all eternity.

bootsmann 4y ago

And they didn't think about making shareholders richer the years before when they hired all these people or how do you explain that process?

vooffle 4y ago
The economy, consumer confidence and investor mood changed. The way you make investors richer changes depending on inflation.
- zwily 4y ago
  Well, interest rates. But that’s driven by inflation.
- MomoXenosaga 4y ago
  Do people on HN not read history books? This has happened countless times before. Or was it assumed that those in the tech industry were a "protected" class of people for whom the rules do not apply? Hell one of the best things about capitalism: everyone is equal before the dollar and everyone is expendable.
  - hypertele-Xii 4y ago
    And expend you they shall. Faster and longer and cheaper, unless a union demands otherwise. https://en.wikipedia.org/wiki/Triangle_Shirtwaist_Factory_fire https://en.wikipedia.org/wiki/Triangle_Shirtwaist_Factory_fi...
  - agentultra 4y ago
    Everyone that is disadvantaged by not holding any of the power is expendable. And expend those in power will do in order to do the bidding of their investors and keep their compensation + bonuses well padded out. You never see CEO’s take pay cuts, lose compensation, or executive teams get, “right sized.” It’s always the workers who get the shaft first. Given that a lot of this is driven by a hedge fund, isn’t this how IBM was gutted back in the day?
4y ago

noisy_boy 4y ago

Thats four whys.

benj111 4y ago

But the b2b sourdough app is a potential driver of future growth. Yes it may help the bottom line today, but getting rid of employees today lowers future growth potential. Investors know this. Investors would also question why there are layoffs in an apparently healthy company. All this means that CEOs don't want to do mass layoffs which even more strongly raises the question of why they did it to start with.

IX-103 4y ago
When the executives start co-opting the language of hedge fund managers while refusing to answer whether the open letters from hedge fund managers prompted the layoffs, the answer is pretty clear. Who else uses the term "right-sizing" and considers how being laid off "provides an opportunity to build resilience"?
edgyquant 4y ago
Tech investors already think that these companies over hire and the current environment is pumping up that sentiment

chmod600 4y ago

"need investor money?" There exist large private companies; how do they behave differently? I could imagine it going either way, depending on the owners, employees, and all kinds of other factors.

lovich 4y ago
Private doesn’t necessarily mean they have no investors, just that it’s not publicly traded securities used as the investment vehicle

overrun11 4y ago

The median shareholder in Microsoft, Google and Amazon is likely a lower economic class than the median employee at these corporations if I had to guess. The framing of ordinary workers getting the boot so fat cats can buy bigger yachts is seductive but I can just as easily frame it as: Fixed income, middle America boomers entrusted these companies to be good stewards of their capital but it was instead spent on paying high six figure salaries to coastal city professionals from elite schools to do work of dubious value.

jujugoboom 4y ago
This is such a poor faith argument that completely ignores any reality. These companies have had a massive last decade or so, and if what you're saying is really the case, then we would see booming levels of wealth in middle america among the elderly. Instead, we see most wealth going to the richest of Americans, with the lions share of wealth created during the last 2 years of resurgent economic boom going to the top 1% of Americans, not the fixed income middle america boomers who are currently dying because they can't afford to keep living on social security.
- overrun11 4y ago
  > we would see booming levels of wealth in middle america among the elderly. I'd be interested to see evidence but I suspect we did see this? Retirement portfolios and housing prices (where the majority of elderly wealth is) ballooned. > Instead, we see most wealth going to the richest of American The elderly are the richest Americans so this is consistent with the elderly getting wealthier.
  - jujugoboom 4y ago
    Retirement accounts are largely a benefit enjoyed by those well-enough off to have them [1], as well as owning a home. So while yes, these indicators have increased, it only speaks to how the bulk of wealth created since 2008 has gone to mostly well-off individuals. And while yes, wealth is overall heavily weighted to older generations, it does not change the fact that the only people who are rich are the rich, regardless of age. While most wealthy people are boomers, most boomers are not wealthy. If you look at economic insecurity (200% FPL), the elderly in America are over-represented, with a rate of about 33% compared to ~27% overall[2]. [1] https://www.census.gov/library/stories/2022/08/who-has-retirement-accounts.html https://www.census.gov/library/stories/2022/08/who-has-retir... [2] https://ncoa.org/article/get-the-facts-on-economic-security-for-seniors https://ncoa.org/article/get-the-facts-on-economic-security-...

xapata 4y ago

Who are the shareholders? Pension funds, which ensure a decent retirement for a large portion of US residents. Index funds, in which many people have invested their retirement funds.

mook 4y ago

I think the last answer is a bit off. … Why? Because that will buoy our stock price, which is important. Why? Because a significant portion of executive compensation is in stocks.