There is often this line "apology for the leadership decisions that led to these peoples’ unemployment?" and the options are as such:

- In an env with cheap money, business chooses not to take advantage, growing slower, and in turn, possibly losing to competitors who did choose to take advantage

- In an env with cheap money, business choose to take advantage, growing on pace with competitors and either keeping or building a competitive advantage

When the environment shifts:

- Businesses that chose not to take advantage of money are less likely to have layoffs, but are they on par, behind or ahead of those that did? Some will be ahead for sure, but it's not guaranteed.

- Businesses that choose the money strategically cut and double down on winning bets

The ultimate key take away for readers reading this: Understand what kind of business you work for, and decide for yourself if you are happy with leaderships risk profile. If you aren't, adjust accordingly...

EDIT: To be clear, I'm not pro-EA and I think they have milked their products for a long while, I'm talking about the meta here.

Companies might have used the cheap money to do something worthwhile rather than hire people to look growing and then fire them and cancel their projects?

…the “something worthwhile” WAS the projects that the spun up and hired people for, which they are now shutting down since it’s no longer economically viable to continue.

Every single time a layoff is done, there’s a conversation about what initiatives are on the chopping block as a result. Investments that are now lower priority are cut.

It’s really quite disappointing that the prevailing sentiment on HN seems to be that all corporate leadership are a bunch of bumbling fools. Just like technology is more complex than it looks on the surface, so too are large enterprises.

Companies do strange things for accounting reasons. For example, going all in on cloud, especially if you're a huge company who can afford the upfront costs of on-prem infrastructure and can reap the savings.

It turns out that buying equipment for on-prem is capex and only tax-deductible once, whereas a cloud subscription is opex and tax-deductible year over year. So it makes financial sense to go with cloud, even if it seems counterintuitive at first because on-prem is cheaper before you apply these accounting concerns.

I think something similar applies with hiring when interest rates are low.

Exactly. “How can a company avoid ever having to layoff 100 people?” “Don’t hire 250 of those 100 in the first place.”

That’s hardly the only option, you can rapidly shrink your workforce through attrition.

Large scale layoffs require companies to be caught completely by surprise which is a huge management failure. The point of upper management is to steer the boat not run into an iceberg.

6% is not large scale.

Many would say that if the company only had to lay off 6% they were taking "reasonable" risk.

Compare to say Luno who had to cut 35% of staff: https://techcabal.com/2023/01/26/luno-layoffs/

Counter: What's better for morale, your project to get stopped now and cut and you re-prioritized or let go, or a slow bleed through the year where no new headcount get put on the project as people leave for you to eventually find out in a year that management knew and kept you on that project aimlessly to "avoid a layoff"?

Personally, I'd prefer the former, as the latter would give me a lot more doubt for future projects

You can cut 20% of a workforce through attrition, but it requires long term planning and shifting people to new roles. You don’t bleed projects over time but move people around after milestones.

Not every job is fungible so you may end doing some small scale hiring and let a few people go. But that’s normal and occurs outside of large scale layoffs.

Layoffs aren’t companies tossing risks, they’re companies offloading risk to their workforce.

> you can rapidly shrink your workforce through attrition.

That would be a terrible move. The people who change jobs are generally the ones with better options. If you just do attrition you'll end up losing only the good people and you have no control over which projects / departments you starve of resources.

If your most senior employees are your worst employees then you have much deeper problems than the need to downsize.

The best people leave when conditions deteriorate not simply because you have a smaller workforce. Shuffle people between projects and scale back workloads as you scale back the workforce and nothing seems wrong.

It’s true not all jobs are findable so you’re going to need some onboarding and to let a some people go but that’s just a normal part of business.

I understand what you are saying but I'm old fashioned (or naive) enough to think that entertainment companies are supposed to be about art (and I'm using the word in an admittedly hand-wavy sort of way) and not about finding cheap money and/or growing headcount.

It already reads wrong if throwing money at my "competitors" somehow gives them some kind of advantage over me. That sounds factory-like (but then I am also coming to believe that what others call "AAA" games may not be the same kind of thing that drew me into gaming).

For EA and other entertainment companies, it's probably not about finding cheap money or growing headcount for its own sake. Cheap money funds more "art." They can try to create new games or movies or tv series and gamble that one or more becomes a hit or even a franchise that makes a return on that cheap investment. Maybe a return that covers the cost of multiple failed attempts. Similar to VCs.

Just like you're blindly copying what you read others say about "cheap money", EA is just blindly copying what others are doing and laying off employees

My dude, if you wanna pretend like the greater macro trends have no effects on large swaths of business then be my guest but businesses in may different verticals are prepping for less sales. It's whats happening. You can la la la "businesses are dumb and no one is a free thinker" all you want but that only hurts you.

No business is an island.

I'm not parroting what I've read others say. I'm sharing my LIVED EXPERIENCE from a company that is like EA. Go look at my profile and look at the news.

This place used to feel like we had some nerds that really wanted to understand business. I'm sad that acknowledging simple macro trends is not considered table stakes anymore.

So they specifically told you that they were doing layoffs because interest rates went up?

I'm not at liberty to share those discussions with you, but I respect you for asking. I can point you to what was shared with the public:

"The current macroeconomic environment is tough, and as a result, companies are still spending but they are taking a more conservative approach to software investments and are taking more time to make purchasing decisions."

Do you think that's a lie? Some businesses have stacks of dollars, but how fast will that value be inflated away? Some businesses don't and rely on credit to cover payroll. That just got more expensive due to interest rates. Our CEO said "Businesses are making decisions differently". Or said another way:

The Macro environment has effects to all businesses.

Your original dunk attempt was "everybody, myself included is just parrotting and blindly following" and I attempted to explain to you that everyone is in this new macro environment (driven by the changes to cost of money, as well as increased money supply) together and is adjusting business expectations accordingly.

Do you think interest rates and the influences to macro env are not the driving factor impacting business decisions right now? Would love to hear what your contrary thoughts are beyond "business leaders are all sheep, myself included".

Macroeconomic environment can also be equated to rising cost of salaries in general, salaries can be reduced by increasing competition in the workforce through large layoffs. If a company can't afford to continue paying large salaries they can easily reduce that cost through laying people off at the same time as other companies

I'll ask you one rhetorical question and then I'm going to stop arguing with you because you refuse to connect the dots for some fantastic hoop-jumping:

- What is driving the cost of salaries raising?

In "normal times" you might say competition and cost of living. Cost of living is... inflation.

Right now, with our increased money supply, inflation is much higher than it's been for a while, and that is a large driving factor for people demanding more salary. This is where interest rates play in to layoffs. This concurs with your points that laying off people could create more competition in the market which means some folks may consider a job for slightly less pay vs. no job at all.

But you've run circles trying to pretend like interest rates are not a factor in this, and I'm not gonna waste any more of my time explaining that to you. There is enough commentary from others here and everywhere else, you are just refusing to believe it.

Of course I refuse to believe it, just because a bunch of people are parroting the same line doesn't make it correct.

Inflation is being driven by corporations who have been increasing prices since the pandemic, they've had record profits at the expense of everyone's cost of living [0,1] and even landlords have been colluding [4] to raise rents on people even though they can't afford it, I mean where will they go as one property management company asked in a business call [3]. Even Forbes doesn't take the opportunity to blame the fed in this instance, which is kinda funny to me, but being a mouthpiece for capital they of course point the finger at supply constraints with some fancy graphs [2].

[0] https://abcnews.go.com/US/record-corporate-profits-driving-i...

[1] https://abcnews.go.com/US/record-corporate-profits-driving-i...

[2] https://www.forbes.com/sites/georgecalhoun/2022/09/30/what-i...

[3] https://www.bloomberg.com/graphics/2022-evictions-monarch-in...

[4] https://arstechnica.com/tech-policy/2022/10/company-that-mak...

And this is all ignoring the fact that you insinuate that your own conclusion is wrong with the line :

>In "normal times" you might say...

I appreciate your sources. They point to many effects people feel. The big I Inflation is being driven by one thing:

An increase in the money supply.

The Fed did that. I’m not arguing the morality of it. It’s what happened. Do we agree the Fed printed more money?

The way the fed combats that decision to increase the money supply is an increase in the interest rate. Do we agree that the way the fed decreases the money supply is raising interest rates?

Everything you point to, all of the sub effects and greed, are because more money exists in the system now. People are spending $7 on eggs instead of EA games because of the egg co’s greed, but that greed is fueled by more money existing now. There is some “natural” higher price that I’m sure you and I could agree on because more money exists and we both agree — some companies are being greedy. That’s not the cause of Inflation.

If the fed were not raising the interest rate, businesses would not be under the pressures they are to work differently. Some businesses don’t need to raise prices but are being greedy. Others can’t survive so they are making changes to attempt to survive.

You: look at all these businesses that are making decisions that are making inflation harder felt for no good reason! It’s greed!

Me: yes, they are being greedy. The only reason they can attempt this is more money exists. The fed will slurp that money back up by raising the interest rates and we are all left to pick up the pieces.

My premise: if the fed keeps raising rates, that it will have continued deeper effects on more businesses. Do you agree?

(And my follow up premise: the fed have to raise interest to fight their prior money printing but if you disagree with that I’m really interested in learning how you think the Fed solves it.)

Or are you still convinced it’s just greed? (I agree greed is a factor, but that’s a result of the feds actions, not the root.)

https://fred.stlouisfed.org/graph/?g=11EzJ - money supply. Notice it starts shrinking Mar ‘22

https://fred.stlouisfed.org/graph/?g=11EzX - interest rates. Notice it start’s materially raising Mar ‘22

My apologies, I accidentally cited the same source twice. One of them was meant to be this link which addresses the greed question:

https://www.pbs.org/newshour/show/why-corporations-are-reapi...

…there are pretty limited options here. Nobody is blindly copying what others are doing.

For most technology companies, salaries and compensation are one of if not the top line item in the budget. And during a time of cheap money (which is objectively true - this is not someone regurgitating other comments), companies invest in new initiatives.

So when headcount is the top line item, and new initiatives are less desirable as capital becomes more expensive…it’s pretty clear that there’s a small set of viable options to make the math work again.

It could still be related to rising salaries but not interest rates. Mass layoffs increases competition and lowers salaries overall irrespective of interest rates, having a lot of layoffs from multiple companies at the same time is a way for the company to save money. I don't know why people think companies that generally have millions or billions in the bank need to borrow money to pay salaries, I've never seen anyone provide evidence that these huge companies are doing that. I only see people parroting the interest rate line and blaming the Fed

Because you are fundamentally misunderstanding how interest rates impact companies. No, these companies are not borrowing money to fund salaries.

When interest rates drop, safe investments (such as bonds), become less attractive. The yield on those investments is not high. This means that excess capital gets reallocated towards riskier bets (such as stocks, or venture investing) to try to yield a return that way. More speculative bets happen as a result of free flowing cash to high growth organizations. Companies are willing to lose money in exchange for market share because investors are willing to bet on companies that are losing money on the off-chance that one of them yields a 100x return. This game becomes more attractive when other means of growing investments are harder to come by.

Now, interest rates are higher. I can throw money into a savings account at 4.5% APY. A potential 7% return by throwing it all into high growth stocks (which also carry significant downside risk) is comparatively less attractive. I'm now much more incentivized to invest in companies that are stable and carry less downside risk. Those companies are the ones that are spending more responsibly and generating positive cash flow.

I'm still waiting for some sort of reference about interest rates directly impacting layoff decisions. You can make claims as much as you want but that isn't evidence that you're correct about interest rates being the cause of layoffs

Because, as I just indicated, it's not the interest rates directly. It's indirect. If you don't believe that high interest rates can have a suppressive effect on higher risk investments, then you're just arguing with clear verifiable macroeconomic fact.

If you do understand that higher interest rates suppress higher risk investments, then there's a direct line between that and slowing VC funding and depressed investor sentiment, which is ultimately what's feeding these layoffs.

The indirect link is not always true. Interest rates can be risen in a bull market. When done slowly, this effect is less pronounced. In this case, we massively shifted rates in a short amount of time during a period of high inflation.

I didn't realize EA was getting VC funding. Which round are they in?

You say all of this about economics like the field isn't one of the worst verified "scientific" fields out there

“Depressed investor sentiment” applies to publicly traded companies as well. Profitability is now the focus. Speculative bets are not.

Public markets operate on opinions and feelings more than science. That sentiment of the markets is not high right now is clear. Look at every publicly traded tech company’s performance in the last 12 months.

Science is the observation analysis of a system, not something to "operate on"

That's nonsense. Do you understand what the scientific method is?

https://en.m.wikipedia.org/wiki/Scientific_method

This level of pedantry is not conducive to healthy conversation. It’s quite clear from my post what I meant: that markets react to emotions, not to the underlying facts. Those facts often drive emotions.

I believe you also understood precisely what I meant, and are trying to form a “gotcha.”

I’ve lost the plot on your point here. That interest rates impact spending and corporate decisions is verifiable fact, using the ever-elusive scientific method which you’ve so helpfully educated me about. If you truly believe in this method, I’d suggest you exercise it and watch how interest rate changes shift economies and markets every time they happen in history. It just so happens to be precisely the exact reason why the Fed moves them in the first place. It was widely discussed when rates began rising that the impact would likely be an increase in unemployment. The Fed specifically addressed this point, and stated that while it was not an explicit goal to increase it in this case, it may happen.

This level of pedantry is not conducive to healthy conversation. It’s quite clear from my post what I meant: that there are not necessarily rules to how markets react. Instead, events occur, individuals form opinions on what those events mean for the future of their assets, and make bets against those predictions. This means that fears of further increasing rates driving reduced consumer purchasing can cause a suppression in prices. In fact, even the fear that others might have that fear, whether or not you believe it yourself, can drive action. The GME squeeze was a great example of this.

I believe you also understood precisely what I meant, and are trying to form a gotcha.

In any case, I’ve lost the plot on your point here. That interest rates impact spending and corporate decisions is verifiable fact, using the ever-elusive scientific method which you’ve so helpfully educated me about. If you truly believe in this method, I’d suggest you exercise it and watch how interest rate changes shift economies and markets every time they happen in history. It just so happens to be precisely the exact reason why the Fed moves them in the first place. It was widely discussed when rates began rising that the impact would likely be an increase in unemployment. The Fed specifically addressed this point, and stated that while it was not an explicit goal to increase it in this case, it may happen.

There are always rules by which a system abides even if they're too complex to understand. You're just writing it off as "feelings and opinions" because having magic fairy dust makes you feel better about the state of economics as an analytical field

IIUC, EA's gross margin is higher than it was pre-covid [1].

But more to the point, they're paying employees say $1 and that employee is producing $4. Seems silly to lay them off.

[1]: https://fullratio.com/stocks/nasdaq-ea/electronic-arts

I'm sorry but does EA take in account their own mistakes or even hear their costumer base about franchises or the famous loot boxes?

This is EA.

This author has nailed it:

https://twitter.com/h1ghju1ce/status/1640819647590305793?t=A...