Comment by andrewconner on Why are profitable companies laying off staff? · 2022-11-18T00:59:56.047Z · LW · GW

Echoing some sentiments said in other answers:

"Successful" tech companies are designed, structurally, for growth at every size. Startups grow to fill a market, large companies grow to expand into new markets. The currency of power internally is headcount — so everyone's pushing for bigger teams, more scope, etc.

For larger companies, hiring is a huge machine that takes time to change course. So, executives are trying to predict the future — what might the economy look like? what businesses will be successful?

When times are good and capital is cheap, incentives aside, this sort of culture might make sense. Google and Amazon have demonstrated that you can keep compounding far longer than anyone imagined, even people who believed in power law outcomes.

High-leveled employees and investors share an incentive: they want the stock price to go up. Sometimes the price goes up because of company growth (alluded to above). But in hard times, lean/efficient companies are valued. There's no reason to run the company break even if you can run it profitably; and no reason to run it merely profitably when you can run it massively profitably.

Meta is an interesting example because they are in an unusual position: they historically had a cash cow (Facebook, Instagram), but it's clear to everyone that it won't last forever. So they're desperately trying to manifest the Metaverse into being their next act. Investors agree: at the recent low, the $META stock was trading around 9x earnings, which is incredibly low for the type of company they are ($GOOG was over twice that).

Lastly, it's fairly safe to say that ~20% of a large tech company is dead weight. Not that they aren't talented or doing useful jobs, but that from the outside, the company could do basically the same without them. This is fractal: companies may be supporting products that were a bad idea, but no one's taken the political hit to cancel it; middle and end-line managers may have a few low performers that are borderline, and they never got around to doing the performance improvement plan → firing HR process. 

So there's a few dynamics at play:

1. The companies don't know how bad it'll get, and it's easier to shed some spare weight now than later, to keep as much cash as possible. Investors may lose patience for reckless hiring, so if you can shed lower-value employees now, you may be able to backfill later with people you want more.
2. It's a good War Time CEO move, optically, to cut costs when investors are worried about the future. This is a good way to stick around longer — you're willing to do hard things.
3. Some companies are impacted more by capital being more expensive, and want to plan carefully.
4. It's a great excuse to lighten up and pull the bandaid off for product lines and people you should have let go earlier.