Reducing staff by ~10% or whatever after doubling it in the last couple years isn't exactly a strong signal of anything.
Point is tech companies are highly sensitive to interest rates and now have to course correct in a world where the market is punishing excessive spending.
IMO, the market is overreacting. Both companies look pretty cheap to me.
Meta should make a free Android phone that allows tracking.
To quote from the latest Economist [1]:
> This logic has broader implications than most investors realise. Now imagine you will receive $100 a year, for ever. By the reasoning above, this has a finite present value, since compound interest means payments in the distant future are almost worthless. With interest rates at 1%, the payment stream is worth $10,000; at 5%, it is worth $2,000. But as well as reducing the value, the higher rate also changes the distribution of that value. With rates at 1%, less than a tenth of the stream’s value comes from payments made in the first ten years. At 5%, around two-fifths does.
and
> In other words, higher interest rates dramatically alter firms’ incentives when choosing which timeline to invest over. Sacrificing short-term profits for longer-term gains is one thing when you are trying to persuade investors that your superapp, machine-learning algorithm or gene-sequencing widget has the potential to up-end an industry. It is another when even the best-case scenario has its value so heavily skewed towards what can be done in the next decade. Startup founders are used to shaking off derision over implausible, Utopian dreams. It is more of a kick in the teeth to realise that even Utopia is not worth much unless it can be achieved in short order.
Sorry for the long quotes, it was the best I could do, I highly recommend that article in its entirety.
However, I think the economist column/article misses some important points:
1: There is a stereotype that corporations only look at the next quarter’s earnings. The article argues the opposite, that corporations are long term focused. The article needs to address that point.
2: Stocks and dividends should be inflation proof (with some assumptions, such as revenues increase with inflation).
3. The article doesn’t seem to mention bonds, even though it talks about constant $ returns. What?
The most interesting part of the article for me was “The original marshmallow test, it turned out, had a flaw. Exclude some children from better-off families (which seems to make them both more willing to delay gratification and more likely to succeed in later life) and much of its predictive power suddenly disappears.” [Slight edits]
Facebook Phone (rebranded HTC) was released in 2013 https://en.wikipedia.org/wiki/HTC_First but had poor sales.
The metaverse is their next play to build a world where they are a bit more shielded from Apple/Google/Microsoft's hardware influence. Pivoting a large business is really hard.
Meta pivoting to burn money on a VR universe that nobody actually seems to want. Meta burning FB users by constantly altering their FB news feed, making it less and less a place for friends, and more a place to see endless reposted memes and ads for drop-ship products and stolen IP tshirts. Meta burning Instagram users by trying to force everyone's favorite photo-sharing app to be a shittier version of TikTok, as well as the above constant feed refactors...
TikTok is definitely a concern but turning off the money pump is a much, much bigger one.
Now, if you have really in-demand skills / experience that may not matter much. But companies are slamming on the breaks. If I was laid off tomorrow I'd expect it to take twice as long to find a job as it would've at the end of 2021 or early this year. Not "there aren't any jobs" but I wouldn't consider this a "hot" market for the majority of roles.
one might argue it's a good time to gamble on a startup.
I'm recently spared from a massive layoff, but it wouldn't have been bad if I was part of that. The severance was 4 month pay plus accelerated vesting (for that 4 months)
I paid off my house thanks to the hot stock market in past 2 years (no one's saying it out loud, but pendamic has been a boom for IT workers), and have some cash cushion to maintain the lifestyle anywhere between 2 yrs to 5 yrs (depending on how frugal I choose to be)
So a 200 base and questionable (but high reward) equity in a startup working on things I'm interested in after a 4 month paid vacation? Doesnt sound too bad.
I honestly don't think there are that many remote jobs available that pay at the FAANG level, outside of FAANG companies, that is. Unless one goes into consulting, which comes with its own risks even during a non-turbulent and recession-proof market, which most definitely we don't have right now.
Carvana is the poster child of zombie tech co that only made sense in a zero rate environment. Many others like it.
You'd be surprised :). Even Amazon isn't eating up engineers like it was a year ago.
No, there is no hot job market, unless you want to take 30-40% pay cut.
also frugality is already looped in amazon values so they wont overhire like google or meta
Problem is the same, lot of businesses get cut or deprioritized
Its a pretty good deal to suggest to employees that they find a new team rather than performing a layoff, I wouldn't be surprised if the profitable/successful teams can still add head count for people they like.
I mean from the article it’s pretty clear giving employees a month to find a new job internally is more like Hunger Games than some guarantee you will be successful. It sounds like a way for companies to not have to admit they are doing layoffs.
i.e. giving not-cut (the profitable/successful) teams a 1% headcount increase and cutting 10% of total staff is roughly equivalent to a 9% layoff.
Are you saying that because stock prices are dropping that the market has reacted to excessive headcount?
Cause I think a better explanation for that, is that in the past 2 years we've had inflation, and that was reflected in the profits of the companies for 2020-21, and now that the fed is lowering interest rates, we're expecting that inflation to stop, and so that's affecting the stock market.
This seems to have very little to do with these companies business models, and everything to do with them failing to recognize that their profit changes are readily explained by inflation/deflation. Which seems to be a better explanation of what the markets are reacting to.
What if the market goes up and stays up? Fed does or doesnt hike rates? Do you really want to play hiring catch up when everyone else has a 2 year head start?
Also, your board of directors doesn't give a shit about the reason, they only care what is being done in response.
In particular, hiring benefits don't take effect immediately, it's going to be a while before productivity is realized from the new hires. So it is very short-sighted to freeze that before an economic downturn, when you want new forms of revenue and innovation to allow you to outlast the competition and grow a business into something that will become the "next big thing".
Also, as a commentary, it makes it more clear that your stock is actually stable, because the only thing that's really changed is inflation and catch up to reality from the fed turning off the money hose.
Apart from Search and AdSense, What team at Google isn't a non-revenue generating team?
Very clear the market has now negatively reacted to high operating expenses that largely stem from excessive headcount.
Most companies will likely not reduce pay if they can help it to maintain competitiveness, but if you’re a bottom or middle performer or on a non-revenue generating team suddenly your job security even at “safe” companies like Google is at risk.