From what I can tell, the recent wave of startup layoffs seems largely driven by companies bracing for a potential economic downturn and using their own customer data to anticipate seriously bleak scenarios. But if that's the case, are we basically still in the early innings of this crisis? Logically, the domino effect would mean that step two involves companies closing up shop and going belly up, right?
With larger companies like Meta, their multiples are also based on growth. So even though large tech shows no signs of being financially insolvent, they will have to still deliver growth in profit with flat to declining revenue. So the focus then is to decrease expenditures in lieu of revenue. There was a ton of hiring the last few year along with the tail wind of tons of money out there. Now it needs to rebalance.
"So far techies themselves have been mostly spared, observes Tim Herbert of the Computing Technology Industry Association, a trade body. Instead, the axe has fallen mainly on business functions such as sales and recruitment. These had grown steadily as a share of technology-industry employment in recent years, a telltale sign of bloat." https://www.economist.com/business/2023/03/27/where-have-all...
The reality is that noone knows whether there's going to be normal growth, stagnation, or a recession, but one thing is for sure: The tech boom of the pandemic has ended along with the pandemic.
So these companies don't have proprietary magic insights and can reliably forecast a recession (as was your question), they're simply responding to the end of the boom and rising interest rates.
An unrelated point would be that layoffs usually target the lowest-performing segment of the workforce and offer legal protection to the company against unlawful termination. Of course not all laid off workers are poor performers but there is obviously a correlation here.
In other words, the combo of layoffs and corporate buybacks is about profit taking (while they can).
Every business, market, etc, has a lifecycle.
Social media, and Meta in particular, has definitely entered the Computer Associates phase of its lifecycle. So now it's time to cut to the bone, extract as much blood as possible.
Such is life. It was a fun grift while it lasted.
Hopefully, adjacent malignancies such as digital advertising and freemium will plateau as well. That'll be a relief. They can join informercials, shopping networks, and supplements in the backwaters of human culture.
You only focused on a small part of the person’s comment. The comment also said when stock is going down, lay offs help. They likely aren’t talking in absolutes anyway
Were there hiring surges for companies whose valuations were not going up?
Source: a little bird told me some companies do such rehiring, and for many H1B holders it is an offer they can’t refuse.
It never is. If anything, tech corporations that have been hot startups two decades ago are shedding their larval teletubby skin and transform from sheltered colorful environments suited for men-children into... well, just your average run-of-the-mill ruthless capitalist businesses your boomer parents/grandparents know and loathe.
The thing is, if they mention they are people-driven casually, they likely know the notion — you can expect some respect for employee rights (provided you do your own homework, can haggle like a used car salesperson, and can tell decision makers from HR personnel); if they emphasise it so much it reminds you of a cult, or if they don't mention it at all, but are instead brimming with descriptions of the company's grandeur, run — if you have anywhere to run these days.
For the bigger public companies their data is available through yearly SEC filings. Just look it up. They’re making record high revenues. Layoffs for them are an optimization not existential. They could’ve been fine laying off fewer people but it protects them from their growing competitors and longer term global trends.
Doomsaying will always be popular but is often misguided. You’re basically relying on a broken clock being right twice a day.
Pretty sure we are in a slow moving car crash with the knock on effects of rates having gone from 0 to 5% just starting to slowly take effect in the broader economy.
The rapid rise of interest rates is to curve demand, which tames inflation. It's a really nice word for what is effectively targeted economic destruction. Job losses and bankruptcies are the casualties.
And that's not all of it. In my country, aggressive plans to build lots of new homes are imploding. Buyers suddenly face an interest rate 5 times what it was before and opt-out. Builders stop building because nobody is buying.
We might be, but more likely is that Meta is facing a reality that all huge companies eventually face: there isn't a play for megagrowth anymore once you are the size of big tech companies. You'll grow a little faster or slower than CAGR. So, since you can't grow the top line, you start looking at the bottom line and becoming more capital efficient. Laying off overpaid people is the start of the process.
I'd love to know what Volcker thinks about our current situation.
Volcker is dead.[0]
They'll just bring back out their bazooka and lower rates again and cause more inequality.
Tale as old as time.
It doesn't seem to be working, for very obvious reasons: demand for energy and food (main cause of inflation) isn't that elastic. Further, there's no unemployment, so people spending and will spend only more because of inflation itself.
The one thing that could motivate people to stop spending, raising bank savings interest rates to something meaningful, is oddly not in the playbook.
I am surprised they have not come up with better models given the technology and data available.
Right, but there's a time lag effect between when capital dries up and companies go belly up.
Many cash-guzzling companies had 12 months of runway. After layoffs and pivots to profitability, 12 months may get extended to 18-24 months, but ultimately, the traunch of businesses without real business fundamentals will shut down after cash runs out.
The capital constriction really started in Q32022. Here's a graph: https://techcrunch.com/wp-content/uploads/2023/03/Screenshot...
So, my guess is a significant wave of startup bankruptcies will begin Q3 of this year, and peak several quarters later (assuming markets stabilize around current levels).
It's not just startups though. It's big tech. It's financial services. It's big and small non-tech non-financial companies as well. Everyone has been predicting a recession for well over a year now. We're living in a very unusual economic situation where some parts of the economy are getting crushed and others are doing fine. No one knows the answer to your question, but yes, one possible answer is that this is just the early phase of the downturn and it's just taking longer than usual to move to the next phase.
While hiking yesterday I was talking with a friend about history, and how all great empires turn to “looting” as their influence wanes. There is plenty of data for this point of view: USA, England, France, Middle Ages powers, Romans, etc.
Just as elites in a declining power will naturally “loot” as much as they can to ensure the long term economic well being of their family, doesn’t it make sense that corporate leaders will cut staff, and generally extract as much profit as they can short term?
See these other videos by PragerU /s
Also it's hard to make the same kind of analogy with 'corporate leaders' as they are typically employees rather than owners. Employees already loot a much as possible!
What's the data? Be interested to read about this correlation.
Anyway, thanks for challenging my opinion - I am likely changing my mind on this.
We've all been experiencing recession since last year, when food and gas prices started to increase. While some regions are more impacted than others, the price of everything has increased.
For those who make over a certain amount (i.e., $100K/year) it's less noticeable than for those making under that. Because budgeting.
Bezos himself warned of this back in November 2022: https://www.msn.com/en-us/news/technology/why-jeff-bezos-is-.... When ultra-rich tell you it's going to be bad, probably best to plan for that. Also, where is the government in all this? Why are ultra-rich still not paying taxes? It's quite an alarming and vulnerable position for majority of people in the United States right now.
Things aren’t good, or bad.
But all economic signals point to it potentially turning very bad, quickly.