I know this is a very tired topic, but does anyone have any good blog posts or articles about "what exactly is it that you all do?" Yelp having 6000 employees. I'm not surprised, I'm not mad. I just want to understand.
I wondered this before joining a large tech company. As it turns out, a lot of engineering is done on experimentation to optimize the product. Only a small portion of users might see the experiment, and many don't succeed.
An example might be complying with food and alcohol law in a single region, which you would never see unless you lived there. Another example might be a complete experimentally gated refactor that shaves 1 second off loading time. A lot of effort would go into simply making sure the change can be turned off, and verifying with unit tests, which takes time and effort.
These projects might be pointless on a small app, but in a large business might be worth millions to the company.
Another aspect is your changes often have to be approved by a lot of people, which is not the case on small projects. Your projects are also analyzed by data scientists, to make sure they're not harming the business - and if they are, your work might be thrown out, which contributes to even less visible change to outsiders.
All of these in concert slow things down, and necessitate staff.
That's a really charitable explanation and I think it explains some percentage of labor, but not nearly all of it (not even the majority of it, IMO). Yes, there is more going on behind the scenes in every company than you'd ever know about. But I think the majority of labor follows the pareto principle-- there are maybe 100 employees in every company of, say, 1000 people that do nearly all the work, and 900 employees that do very little to nothing at all at best (and produce negative value at worst).
Why that is the case in every business, I haven't been able to figure out. I suspect it's because when businesses reach that size, the efficient market effects become greatly overstated in the short term, so these businesses naturally acquire a lot of fat.
One piece of evidence for this is that private equity exists. You can buy a business, fire a quarter of the people, then sell it and make a lot of money without hurting the operations at all.
> These projects might be pointless on a small app, but in a large business might be worth millions to the company.
With enough traffic and revenue, you'll get a positive return on hiring a bunch of engineers to optimize things that wouldn't be worth it for smaller sites. With enough engineers you'll get a positive return on hiring engineers to make engineering more efficient.
It's only natural in that case that as traffic and revenue drops, the ROI calculation changes and it suddenly becomes better to lay those people off.
And that's just engineering. I can imagine that in this downturn the sales department just isn't generating new revenue. What brick and mortar business is going to advertise right now? It only makes sense to lay off as much of the sales teams as possible. You can hire them back later.
> With enough traffic and revenue, you'll get a positive return on hiring a bunch of engineers to optimize things that wouldn't be worth it for smaller sites. With enough engineers you'll get a positive return on hiring engineers to make engineering more efficient.
Very insightful! As a corollary, you should not staff up until there is something to optimize.
You probably can't "hire them back later". People who you've fired might have an aversion to working with you in the future, or simply be occupied with other work when you want them back. If you mean ripping out entire teams and replacing them with outsiders, that also has costs.
What I've seen is that salespeople are lot more fungible than veteran engineers who have a lot of knowledge of the companies system. Sales armies tend to have a lot of more junior staff too. They might not hire back the same salespeople, but they should be able to hire what they need. There will be a lot of people looking for work.
There's also reputation issues with a "hire them back later" attitude. Engineers are likely to become skeptical of recruiters from companies with a policy like that, and then you start struggling to hire anyone.
That reference was about sales employees, not engineers. I think most people realize that in larger companies the sales team and the engineering team are managed very differently, with the employees having very different expectations about the stability of their position.
> With enough traffic and revenue, you'll get a positive return on hiring a bunch of engineers to optimize things that wouldn't be worth it for smaller sites. With enough engineers you'll get a positive return on hiring engineers to make engineering more efficient.
The problem is that no modern tech company I know actually measures the ROI of this (positive or negative) so it's completely unrealistic to determine the IRR on it. In other words, there might be a scenario where it actually is more profitable NOT to do it.
Check the incentives. For corporate managers, your salary is generally proportional to the number of people you manage. Who cares if your 1000-person org doesn't accomplish anything, you're a big shot now.
On a sports team, coaches are rewarded for championships. There is no room for waste, and underperforming people get cut.
Most sports teams rosters are restricted by league rules. However coaching staffs are not, and they have grown tremendously in recent years, as have college athletic department staffs. When someone actually does take a hard look, these staffs seem exceptionally bloated and wasteful.
Ohio State lists 458 people in its athletic department. There are 192 faculty members in Ohio State's English department, with a support staff of about 50.
One assistant coach is called the recruiting coordinator, but he’s backed by a Director of Player Personnel, an Assistant Director of Player Personnel, a Coordinator of On-Campus Recruiting and a Recruiting Assistant. There are three video coordinators.
That is a charitable view of private equity - that it improves margins without hurting operations.
Another explanation lies in reputation mining. Think of it like doing something profitable but unsustainable.
Curious what kind of experience or data sources you base your first graph on — the Pareto principle piece makes sense. But isn’t it possible the very end of the tail is still profitable, albeit less so, than the head?
> Why that is the case in every business, I haven't been able to figure out. I suspect it's because when businesses reach that size, the efficient market effects become greatly overstated in the short term, so these businesses naturally acquire a lot of fat.
i think it's more likely that no business will know in advance who those 100 employees that create value are. It might even be that the combination of those 100 creates value beyond the sum of them individually (lets say, they are in one team).
There are also mundane work - fixing bugs or upgrading libraries, as well as keeping up the infrastructure running.
And then there's the middle management - that comes from the mis-trust that upper management generally have for the "grunts", and this happens all the way thru the organization.
> private equity exists...
and if you look at those companies that did this - very few of them becomes the next big thing. Very few of them actually innovate. Very few of them, even survive.
Private equity is really about taking risks with a failing business, e.g. buying it really cheap, and cut the fat and ride out the storm for hopefully a better future. I dont think any private equity will buy a company that isn't failing in some ways, and try to "make it better".
Companies doing well generally aren't for sale at a reasonable price anyway, so yeah, private equity by nature buys failing firms and tries to turn them around. That's the goal of the business.
Yes, you're probably right to some extent. A lot of efficiency and velocity is exchanged in these large scale environments for risk-aversion in the form of heavy testing, supporting the ability to revert changes and requiring approvals.
I'm not personally a fan of it, but I get why it works this way. The financial loss if you break something adds up in an excruciating fashion on a per hour basis.
They don't get efficient during a downturn. They might shrink but cuts for the most part will fall on those that lost the political jousting regardless of actual contributions to the top or bottom line.
The real answer is that it's a publicly traded "tech" company that has to maintain a charade of growth. They can either give their profits back to shareholders (violating the growth charade) or they can hire more people and hope they figure out how to create actual growth.
Corona spoke up and pointed out the Emperor had no clothes.
>Another aspect is your changes often have to be approved by a lot of people, which is not the case on small projects.
So you need more engineers because you hired more middle managers?
That's a little absurd in my opinion but I am likely wrong in this assumption.
It just seems like the reaction to "We have lots of approvals" should be figuring out how to reduce the amount of approvals needed, not hiring more engineers to increase velocity.
It sounds wasteful until you've been with a company that outgrew its management structure. I spent many years at a place that grew from 200 to 800 people in about 3 years. We prided ourselves on the flat org and high level of responsibility. But as we approached the 500 mark, the cracks really started to show:
- Things truly requiring management handling (like raises, big expenses, hiring, etc.) took FOREVER in the best case because of the bottleneck at the top. More commonly, they got lost/dropped without explanation.
- Flow of sensitive information was slow and inconsistent because the only way to communicate with a flat org is all-or-nothing.
- Specialist engineers found themselves trying to track too many projects before they realized the overload was a problem (this was me)
- The president (and effective sole owner) was still deeply involved in all projects and regularly exercised veto rights. As the project load increased, the vetos landed later and later - some times after we'd already spent 50% of the budget! This left our customers up a creek and our reputation suffered.
It's not just approvals from managers, sometimes you need approval from a group of peer engineers just to create new routes in an (internal) API, or to launch a new cron job that will upload an Excel spreadsheet in marketing once a day with data from Google Forms.
Also, UX wants to see the final result on their screen before they approve your build, so before deploy you have to push into a test cluster, but there are only 10 of those, and you need to wait until one of them is free.
And of course your Jenkins server takes 2h to build and fails sometimes, so pushing small changes takes 2h because you have to babysit the build. The testing cluster above also takes 2h to build. CTO believes in engineers taking care of their code, so SRE is not allowed to handle the builds.
And then there's an average of 2h of meetings per day (I'm not including the 40 minute daily scrum because your squad has 15 people). Half of them to discuss the production incident you had because you didn't see the Slack alerts when you were in another meeting. The other half is chapter and guild meetings where you don't talk, but participation is mandatory. On Mondays you have sprint planning, so forget about coding.
Engineering fact: A 300 watt amplifier is only twice as loud (+10 dB) as a 30 watt amplifier. The same math works for engineering teams.
The best way I’ve ever heard this explained is to imagine a software business as a machine. Early on, it’s easy to trust - the machine is small, there aren’t many working parts and dependencies are all manageable. Making things even easier, the founders generally have control over hiring and they’re often still at the hiring friends/colleagues stage of their evolution.
Then, the machine gets bigger and the dependency graph gets more complicated. Suddenly, if you change one small part of your module, you run a very real chance of ruining something someone in a faraway department relies upon. So, the machine evolves to have things like coding standards and more formalized review processes. Unfortunately, the machine is composed of humans and humans aren’t as simple as just pulling it all apart, greasing it up and putting it back into service. So every single time you add a review step, there’s a chance it genuinely adds to quality (or removes risk). But, there’s also a chance that that change was about ego and organizational power. Then, in five to ten years, they hire MBAs to come in and lay people off.
I think you need as many approvals as your risk tolerance allows for... they're not pointless. If they are pointless then sure, get rid of them. But I don't know how you'd guess that number without deep knowledge of the business.
It is sometimes better to go slower than you could and be more confident that the product is acceptable. Approvals can but don't necessarily help with that.
You start out with a very light process. Then you have outages, or you discover that not every part of the system with appropriate care, etc. Then you put some process into place. That slows everyone down a bit... your business keeps growing, though, so "more slightly less efficient people" can capture more of the market than "fewer more efficient people" can because you have a calculation where something like 1000.4 is still greater than 101.0, so if that additional stuff getting done is worth the cost of more people, you keep doing it!
And you can cycle through this a few times. And yes, people will also cycle through "we need to reduce bottlenecks" and such, but at this point, you've been successful, you've got a bunch of money coming in, and pissing off your clients is something to be avoided, since individual efficiency is not the end goal by itself.
> So you need more engineers because you hired more middle managers?
Companies often implement more process for good reason.
The antithesis of old Facebook's Move Fast And Break Things is to have policies that ensure good security, stability, accessibility, privacy, internationalization, meeting legal requirements, etc. and that usually means processes to ensure that eager engineers and product managers actually meet those policies, instead of rushing to launch.
It's easy to scoff at process when you're a small company or startup whose mistakes will go largely unnoticed unless you suddenly go viral. If you're a Big Tech Company, accidentally messing up security or privacy somewhat means getting a front page article on The Verge detailing your crimes.
Working at Google now, there's plenty of process involves in developing and launching a thing, but I can't really say any of the pieces are without merit.
You're not hiring more middle managers because you want too, no large companies have to promote engineers to senior engineering managers to handle the complexities of approvals required by compliance such as SOC2,SOC3,ISO27001,FedRAMP, GDPR, etc.
I've worked at companies were every line of code has to be reviewed and approved by a lawyer. Yes a lawyer (usually a former engineer that the company paid to go to law school) is reviewing some dumb little javascript or python script for license and legal compliance.
> I've worked at companies were every line of code has to be reviewed and approved by a lawyer. Yes a lawyer (usually a former engineer that the company paid to go to law school) is reviewing some dumb little javascript or python script for license and legal compliance.
Jesus, what company was that? And how about libraries included... Will this lawyer now also need to go through that?
The approvals usually come from other engineers. It stems from having to modify highly-sensitive code which usually has an owner you need to work with to get an approval.
The approvals often exist for valid reasons. You can't just get rid of them. You can try to streamline the approval process but that only gets you so far.
Yelp's engineering isn't likely much more than ~150 people (I worked there ~2 years ago, maybe has grown since then but honestly, given their revenue situation even then, likely not by much). The mix there is just like most companies; you've got dedicated teams for each of their apps (which includes Android, iOS, web, business-facing, etc), you've got API teams, back office teams working on moving data around and business analytics, a very secretive abuse management team, IT, etc. Yelp also, given their age, wasn't (at some point) running their primary workloads in the cloud; they had (have?) a colo DC in San Francisco that hosted a ton of stuff, so there were people dedicated to that hardware. There was some movement to get rid of this as I remember.
Surprisingly, or hopefully not, the vast majority of the company is more directly revenue generating; sales and customer acquisition. Its spread very globally; at least as of a few years ago, the SF HQ didn't house any sales people, though I think they had an office in Oakland which did.
Point being, I always got the impression that their engineering team was very "right sized" given their revenue and product scope.
When I left last August, we had around 600 in engineering, around 900 in product and engineering.
Engineering was mostly based in SF but with satellite offices in London and Hamburg. It looks like they were expanding in a large way into a Toronto office too.
Infrastructure was around a fifth of that total but included verticals like search and machine learning infrastructure.
Yelp turned off their last datacentre in early 2018 (IIRC) - and is entirely on AWS.
You may be right. I never counted nor directly asked, that was just the number I overheard. It felt right; afaik, all of the engineering happened in SF, except one remote office in (IIRC) Germany. I know there were a few companies they had acquired (Eat24 and SeatMe) which remained somewhat isolated from the primary Yelp engineering teams (with their own floors of the building and everything), definitely possible the numbers I heard were not counting them.
That number ~150 engineers seems way too small, at most tech companies I worked at, engineering comprises 40-50% of the staff, if it doesn't something would seem very off. Engineering in this case is product, platform, IT, hardware etc.
Abuse management is usually secretive because if you publish the "rules of non-abusive behavior", you end up with a bunch of behavior that complies with the official rules while still being abusive.
Because of the value in subverting abuse systems such as Yelp ratings or Google SEO, these teams usually are handled differently with an entirely different threat model - which is why they may be referred to as "secretive".
Even 150 blows my mind. Years ago I worked for one of the top 10 EHR software makers (at the time - maybe even now, I haven't looked) and we had 1/3 the number of engineers on that system.
It's funny, as soon as you have a system that has to take into account human behavior and variety of possible inputs/states, it gets massively complicated if your goal is to try to have people not be dissatisfied with it. (and if you're trying to do it right -- or alternatively, NOT making the right decisions about that goal). People just don't behave like you think they will/should.
As an example: a retail transaction database. Or a calendar booking system. That should be really simple, right? Just record who ordered what, when they received it, who sold it, etc. Who reserved the room, who to send invites out to, simple?
No, it turns out that you have to also take into account people whose orders got delayed by the human-based shipment system, people who got coupons and they expired/want to extend the coupon, people who returned the merchandise and never got any confirmation that it was received back. Or what if someone modifies the meeting ___location after people accepted -- does a minor change to the meeting description trigger a re-invite or update, or not? Can meeting rooms be held by more than one person at a time? Or what if you want to tie it to the email marketing system that wasn't properly integrated or planned to be integrated -- that's another couple of engineers who have the thankless task of maintaining ETLs that constantly break whenever a change comes along.
Or in the case of Yelp, I'm sure there's small teams who are responsible for the mundane tasks of how to keep track of when a business closes, or reopens, or temporarily shut down due to virus situation -- how are the entries for those businesses supposed to be updated? We never had a field for "closed by mandatory government order" -- that's gonna take a refactor of xyz to implement, etc. etc. We have users who review things, and then those users someday die/go idle/get banned. What happens to the ranking of their reviews? It goes on and on.
(and usually, the people who take the time to think about these things in advance set themselves up for much less pain, and far fewer people needed to fix it, later)
> As an example: a retail transaction database. Or a calendar booking system. That should be really simple, right? Just record who ordered what, when they received it, who sold it, etc. Who reserved the room, who to send invites out to, simple?
I am not sure people downvoting me understand what all goes into an EHR/practice management software. Calendar booking? Yep. Billing. Oh hell. Don't get me started on the byzantine mess that medical billing is! Then there's charts with icd-9/10 hell. And then everyone you sell it to wants their own charts a little different. Patient records, insurance, I mean, it goes on. The database had several thousand tables. It was insane.
I don't mean to be flippant or unnecessarily mean, but my anecdotal experience is that many EHR systems are pretty widely derided by healthcare providers (i.e. end-users).
Maybe it's not a good thing that only 50 engineers were working on that system.
Doesn't matter to me, I'm not in that industry any more. But yes, they're a mess. But, honestly, I don't know you would make it less of a mess. People just need to accept that some systems are complicated and the more you try and make it less complicated the further from that goal you get.
There is a whole bunch of stuff behind the scenes that you wouldn't be exposed to as a consumer, such as analytics data pipelines, ad sales interfaces, etc that in many ways are more complicated and do more than the consumer facing thing itself.
An old EHR system from years ago does none of those things, doesn't do engineering heavy things like live updates with thousands of A/B/C/D tests running simultaneously with multiple clients for multiple operating systems and so on.
Often this comes down to how much money you're making. Any product has a long, long tail of work you could be doing to improve things. When you're a scrappy startup with few engineers you wouldn't even think of spending time on that stuff. But when you have substantial revenues, why not hire more engineers to work on it?
The problem is edge cases take a shitload of work via pareto principle. And if your company is small, edge cases can be ignored because they affect 1-2 users. When you're serving millions, those are thousands of users. You might be the only entity in that industry at that scale and have to custom build everything.
Yelp is a public company, and their SEC filings will give you insight into where they spend money. In 2019, over half of their expenses were Sales and Marketing, so we can infer that many of the 6000 employees are likely in roles dedicated to Sales and Marketing.
And it'd make sense that the sales team would be first on the chopping block. With small businesses under pressure, and many closed down entirely, publicity services like Yelp are a very hard sell.
Not exactly, if they just so happen to be spending a lot of money on purchases of ad-space, or advertising services.
For example, just one marketing VP with a salary of $120,000 could have an advertising spend budget of a few million.
But in Yelp's specific case, they do have a ton of sales/customer service people who most definitely are among the first to go, along with engineers who are working on projects that are not related to keeping the website from 404ing
Most consumer technology products are much more complicated under the hood than they appear to be to regular consumers.
Even most programmers -- who are well aware of the hidden complexity of the products they themselves work on -- usually seem to believe that this must not hold true for the products of other companies.
For every feature you're aware of on a random consumer tech product or service, there are probably ten or twenty more that don't concern you, that you haven't seen, or that you don't care about.
Don't forget the multiplier on how many more internal systems a company has vs its external ones. It's not uncommon at all to see thousands of engineers at a large company working on internal-only systems, covering the full gamut of every need of a large corporation. Hell, even just the facilities management systems for the office spaces are complicated.
I read somewhere (can't remember where) that Airbnb had a dedicated team of 13 engineers and designers working on the welcome email alone. Getting the CTA "just right" resulted in a huge difference in conversions.
That's a great point I always struggle with coming up with UIs for side projects, but really everything I come up with will always look cheap compared to the efforts of 13 experts.
I mean you could go work for them? McDonalds is highly optimized fast food but they have a quality issue. Breakfast and chicken nuggets are about the only thing they do well. Walmart is getting better with e-commerce and online groceries. I think that’s the future. If in were Bezos, I’d be worried about Walmart. Target needs to step up their game too especially around grocery delivery and pickup.
The question is could they have achieved the same with two people.
When I was contracting I was always surprised how outwardly similar businesses could have vastly different IT functions. Sometimes an order of magnitude larger for no apparent gain.
Speaking from experience[1] I attribute this to the "empire-building" mindset that sets in once a company gets funding.
It begins innocuously enough. It takes just one or two mid-level manager empire-builders to join the company. Thanks to the funding, the product and business want growth at all cost which means everything needs to be built and launched yesterday. The engineering-managers say well sure, I need 100 engineers. And so the game begins; the early empire-builders get promoted to dizzy heights.
It doesn't take much time for others to take notice that they need to build an empire to get promoted and every mid-level manager is hiring like there's no tomorrow. In no time you have an incredibly bloated org. In this environment not building an empire is not an option; teams with fewer than 10 members don't get new-shiny projects and are brutally sidelined.
[1] I've been on both sides. The start-up I was working in got acquired by a behemoth that had skilled empire-builders. My team got massacred. In my next gig I had learned my lessons so hired like crazy and in no time had 40 engineers reporting (direct/indirectly) to me 15 of whom had any real work to do. The rest were building random CRUD apps. In the end, realized that empire-building is not for me; I enjoy running a small tight knight team producing high throughput and impactful work.
Sales and account management are easier to hire and fire. That said I bet some engineers were let go. If you're not directly client facing or related to e-commerce, you're not essential right now.
Yes but they're the easiest to ramp up and wind down. Certain segments of the economy as devastated right now. Would not want to be a flight attendant, but airplane engine mechanics are probably still in demand as cargo flights replace passenger traffic (since we're ordering everything online now).
Logically, that would extend to people whose job revolves around signing up restaurants to marketing portals. The restaurants that have an online business are already there. Those that don't have an online business are already closed.
According to flight aware, global air traffic is down 75%. So I'd bet mechanics aren't doing so hot either unless they were dedicated to cargo.
Programmers arent as easy to replace because they already understand the system. Training takes time, and if there's not enough documentation then you'll end up contacting the previous programmers for help (I've seen it happen) anyway.
Marketing and SDRs are really easy to scale up/down; there are some things that are specific to each product but generally it doesn't matter what you are selling it is the same soft skills. Account Executives and Sales Engineers who provide long term support are a lot harder to replace though.
Engineers are easy to fire, but incredibly hard (and expensive) to hire, especially if you become known as the company that'll fire people immediately in a crisis. There's a fine line between saving money now and spending it later, and I'm sure Yelp - just like every other company out there - is trying to figure out where does that line lay.
I don't think engineers have this as a specific trait. Every worker in any occupation has the attitude you describe above.
The thing that truly influences "hard to hire" is supply and demand. With the influx of bootcamps Software engineering supply has increased and with COVID-19 decreasing demand Engineers may no longer have the luxury of picking and choosing like they used to.
I'm an engineer btw. Just viewing the situation from a realistic lens.
I am an engineer too. I've helped hire engineers at two pretty big companies before and have done all the hiring for my current company.
While the supply has increased, the number of senior engineers hasn't grown at the same pace. I know of companies who've fired even their senior engineers, but they've been hit particularly hard by this crisis (think 'business model is literally rendered invalid' level of affected). Most people who think they'll be able to weather at least the next six months will be reluctant to fire more experienced engineers, because they know how hard it was to hire them to begin with.
While some of the options might be gone, chances are people who get laid off or are still in the market will look for companies with better chances of surviving this (think Google, Apple, Facebook, etc.), so the pool of experienced talent might actually be reduced for startups.
In other words: people with 5 years of industry experience are playing in a completely different arena than more junior engineers, who are unfortunately in a more precarious situation.
>In other words: people with 5 years of industry experience are playing in a completely different arena than more junior engineers, who are unfortunately in a more precarious situation.
The logic is sound, you have a point. But I think it doesn't play out this way in reality. Maybe it's like this for your current company, but is that the general trend?
I know that during the dot com bubble bursting many years ago what you said was not the case. Could be different now but do you have any other supporting evidence?
That's actually a good data point I'd like to have. Unfortunately I wasn't in Silicon Valley at the time, but at least where I was, it didn't affect my opportunities of finding a job at all.
I was born and raised in silicon valley. It was pretty bad across the board. Tons of good programmers got killed including ones that were really solid.
Mind you the situation is different now so what you say could be right in a certain way.
I think they mean easy to fire in the sense of "easy to go through the process of firing and deallocating tasks/knowledge/etc.", not "easy to justify firing."
I believe a lot of Yelps employees are outbound sales - they cold call small businesses and try to convince them to pay Yelp money.
More generally, it's kind of amazing that any company with 178 million unique "customers" only has a few thousand people working there. I know this is the norm nowadays due to the power of computers and the Internet, but I imagine how many people would have been employed to perform the same tasks fifty years ago and suspect it would have been three orders of magnitude higher (and completely uneconomical to do).
I was never satisfied with answers like "actually it's way harder than you think" but this article helped me understand: https://danluu.com/sounds-easy/
I forget where, but somewhere I read that at large companies relatively small optimizations can be worth millions of dollars. Because of that, it's worth it for these companies to apply a lot of engineering resources to optimization problems (including developer experience).
I know you're not saying this, but I'd caution anyone against saying things like "<company>'s product is just a glorified <something simple>". It's very hard for people not working directly on a product to truly understand its complexity and everything that goes into it.
What happens is that when a pure software company is a startup it is severely constrained in what it can execute on. As it gains traction, it receives funding and revenue that allows it to invest in more people to get more done. In the beginning the marginal ROI of each hire is high, but as they grow it slowly decreases and may become dominated by communication overhead if proper structure isn't added. But as long as growth is on pace, they will keep hiring to stay ahead of the curve and squeeze as many gains as possible. When VC money is at play, management will be pressured to grow at all cost, and worry less about the downside because the investors are looking for the grand slam. There's never any shortage of internal stakeholders who will have ideas of where to put heads to good use.
In short: they have 6000 because that's what leadership thought they could afford. Obviously a 10-year bull market leading up to the current lockdown situation puts them in a rough spot.
I once spoke (well, listened) to a retired old-school Silicon Valley hardware engineer once who told me that ~80% of the projects he worked on never saw the light of day, never became products. Eighty percent, of hardware. It put things in perspective for me as a software guy.
I don’t get why this question gets repeatedly upvoted in HN. I just responded to a similar question on Airbnb in another post. Do people not work for large corporations here ? Yelp’s business model is to sell ads to local businesses. And ads don’t sell themselves. For that you need to hire army of inside and outbound sales folks in every region, geo, market. This also means there is a whole account management team who is managing relationships with the thousands of advertisers. And then there is an ad tech team that is integrating these ads, but also reconciling payments and payouts in multiple currencies. I wouldn’t be surprised if majority of Yelp’s employees are in sales, sales ops, ad ops, and advertisement side of the business
Global companies employ regional sales and marketing people, since those are typically the most effective workers in those roles. Once you start layering on countries, there are also administrative roles that get added.
Same as in any other large company: empire building and pfiefdom staffing. That is what people do. I find it curious how this is allowed to be completely, completely absent in the standard narrative on private business, and yet so ridiculously obvious to anyone that has ever worked in one.
There is this canon dogma about 'market efficiency keeping things lean and fit', which is so obviously false and disproven by every single Corp out there, and yet is allowed to stand. Curious.
Let say there are 500k restaurants and businesses that pay for services on yelp. Let’s say an average sales person services 100 of these places. You’ll need 5000 sales people.
A lot of jobs exist to cover some broken process that could be fixed but costs way more or requires a lot change to actually fix versus throwing a body at the problem. Then things bloat a little bit, but in my opinion there's a lot of things that seem like waste to an outsider that are value added when you consider the system that they exist in.
Clearly they were doing nothing useful, because despite them being laid off, I can still open my Yelp app right now and browse around just fine. Most office jobs are "adult daycare", even in tech (blasphemy, I know).
A company like Yelp needs a lot of boots on the ground type staff to work with restaurants on the sales side. Their infra may scale but that function doesn't.
Sales reps without a clue, product marketing juniors (glorified blog post re-writers), partner channel manager (like an smtp server between companies but with less reliability), crm data cleansing specialists (all needed because of the former), etc
I wonder how many engineering hours they use to strip the mobile web version of features to force you into their app. That is one reason I'll never install their app and won't miss them when they're gone.
Wait till you see that AirBnB has 14,000 employees. That's fourteen thousand! For a site that's barely a step up (in complexity) from Craigslist (which has .... 50 employees).
This is exactly why I'm having a hard time mustering sympathy for the layoffs. If anything, they will use this as a stepping stone to a more ethical career choice. I do still feel for them on a human level though.
> Today we will let 1,000 of our colleagues go and furlough approximately 1,100 more, while reducing hours for others. Your department leaders will be in touch this morning to discuss how this affects you individually, and letters with more details and FAQs will follow this afternoon.
Honest question - is it normal to announce layoffs publicly before telling the affected employees? I guess I can understand it from a PR perspective, but it must be awful to read that and sit around waiting to find out if you're affected.
The first person who gets laid off is going to immediately call The New York Times, TechCrunch, Bloomberg, etc. with probably-incorrect information about the layoffs. So PR wants to be out ahead of that. The real world doesn't have atomic transactions, so you have to pick between that scenario and one where some people are worried about their job for a few hours.
Usually it's more people who get laid off start talking about it on Twitter, then the news media get wind of it and start talking with the laid off employees, and find some willing to describe in detail exactly what went down, send along a screenshot of the announcement email, etc.
If I got laid off I'd talk about it on Twitter too. That's a natural reaction for many people. You want to commiserate with others in the same situation and share useful unemployment and job-finding resources. Hell, a big layoff gets its own hashtag.
Why does anyone talk to a journalist when they don't get anything out of it or advance their interests? People like to tell their story, especially when aggrieved.
There are also legal aspects to doing layoffs (WARN Act, providing return transportation to home country for employees on certain visas[1], plus state-specific legislation like in California). Unethical companies have gone without doing these things in the past, so accountability is in everyone's interest here.
[1] 8 USC §1184 (c)(5)(A): In the case of an alien who is provided nonimmigrant status under section 1101(a)(15)(H)(i)(b) or 1101(a)(15)(H)(ii)(b) of this title and who is dismissed from employment by the employer before the end of the period of authorized admission, the employer shall be liable for the reasonable costs of return transportation of the alien abroad.
I mean you're literally contributing to HN for free right now. Same thing, different motivation, different company benefiting from your free contribution.
Or back in the day, post on f*ckedcompany. Though pud wouldn't bring that site back now. Back then it was because of irrational exuberance. Now, people are losing their jobs because of pandemic.
My guess is that it's such a significant share of the workforce that it is considered material information for a public company.
For other commenters asking about the workforce: Yelp has an army of salespeople because they have to sell to so many small businesses. What they do is frankly amazing to me. I used to sit on the sales floor sometimes to experience the excitement. It seems like they'd be the most affected, and I hope they fare well. [Source: used to work there in engineering]
I worked in the semiconductor industry in the 90's, when it was going through many waves of layoffs and plant closings as the manufacturing went overseas. It is actually the right way to do things, to say to your employees "we're going to have a layoff soon, it will be about this many people, those laid off will get this severance package". Then, you announce it publicly, the same day you've announced it internally. People get a few days to let it sink in, which does suck, but if you have any kind of severance then you know that it's not like dying, and you get treated a little more like an adult.
Compare to the way things were done in the early 80's when the same industry was new at this, they did it as a "surprise" all at once, hustling people out the door and people don't have any time to exchange email addresses with coworkers, etc.
Of course, if you're not offering any severance package, then you have more of an incentive to do things the wrong way...
This is usually coordinated. PR talks to a friendly outlet, gives them the exclusive on the story with the caveat that the timing is released a few minutes after employees have been informed. This lets them get correct information out, control the narrative, and gets the friendly news outlet an exclusive story. Generally speaking, it's also done to be respectful to the people who just got laid off.
Wouldn't the people who prepared that announcement work at Yelp in Marketing/PR? Or at least have had to approve something before it was announced? So some employees must have had some knowledge. Maybe they knew they were not going to be laid off/furloughed.
For a publicly traded company it might be required, otherwise it's effectively material insider information that you've just shared with the whole company.
It means something more specific in government job parlance I believe, but essentially you are still employed but not getting paid your salary and you don’t work. Usually (and most importantly) it means that your benefits like health insurance continue as well.
A company like yelp making 1 billion revenue per year, I'd except they could have their employees back, for at least a couple months, maybe furlough them with 80% of their salaries...
That would be nice, but most companies most likely prioritize profit for shareholders and rather lay you off/furlough and let government / unemployment / rescue bills pick up the cost.
If, like say Facebook, they expected their revenues to come back once the lockdown-forced recession is over, that's probably what they would have done. Yelp had problems before this, so this is just what's forcing them to do it now as opposed to later.
and take a huge earnings hit? WHY? when you can just let people go. it's a company with shitty business ethics, so why would you even suggest that they do right by their employees?
Look layoffs are always shitty, and Yelp in many ways is not an ethical company. However if you read the actual post, the leadership is at least trying. The CEO is taking no pay, execs are taking pay cuts. They've cancelled projects. My guess is that their revenue has tanked to near 0 and that since many of their clients are closing, possibly for good they're expecting significantly lower revenue for the next 2 years.
Yup. I don't like Yelp, but in this situation the choice isn't between layoffs and no layoffs, it's between layoffs and bankruptcy. And in bankruptcy you'd see massive layoffs anyway.
The choice is to build an emergency fund, just like you would do for yourself, so you can pay your rent, your bills if an accident in your life happens.
Yet, financial crashes happens quite regurlarly but companies expect the gouvernment (citizens) to pay the rescue bill. And I'm not going to cry for the execs taking a 20-30% pay cut.
Almost half of Americans don't have $400 to cover an unexpected emergency. For many of them it's because they simply don't make enough money to save a lot.
Yelp is in a similar situation; they're simply not profitable enough to have been able to sock away 6+ months of expenses to be able to weather a black swan pandemic event. The FANGs are profitable enough and they do have that much money saved up, but Yelp isn't and doesn't. Their business model was already a little creaky before this started and all their customers shuttered.
I don't really expect companies to plan for the government ordering the majority of economic activity to halt for an undefined length of time.
This isn't just some "rainy day" to save for. This is unprecedented, and it's only necessary because the government did not take steps to contain the outbreak sooner.
Money given to companies after this is not a bailout in the 2008 sense. It should be viewed as compensation for damages caused by the government's bungled response to the virus.
I'm not defending the US's response at all, but pretty much every country has shut down over this. It's not clear how that could have been prevented. Yes, it would have prevented a lot of deaths, but the total shutdown seems to have been inevitable everywhere.
Look at South Korea and Singapore and Taiwan as examples of countries that applied testing early and haven't needed to tell everyone to shelter in place. They have seen some economic disruption, but nothing like the what the US and the EU are experiencing.
> This is unprecedented, and it's only necessary because the government did not take steps to contain the outbreak sooner.
The whole world is shut down over COVID. Even with borders closed as much as possible it has spread. There is no intervention by the US government that could have been done in January that would mean the country would be open for business today.
> There is no intervention by the US government that could have been done in January that would mean the country would be open for business today.
Sure there was. Other countries did it. The US and the EU were caught unprepared but several countries in Asia did the right thing, probably because they had previous experience with SARS.
A total societal lockdown is not the only viable response to a disease like COVID-19. It might be the only viable late-stage response, but early testing, tracing, and quarantining has worked in other countries and it could have worked here if our government had been on the ball.
This is objectively incorrect. There were many countries that took a far more aggressive stance against the coronavirus and as a result have been able to better deal with it and the economic impacts.
The fact that people are repeating this lie is mind boggling and deserve to be called out because we literally saw this coming. We had months to prepare when we saw other countries dealing with the problem and did nothing.
While job losses will pile further misery on the economy, I hope that means there are now fewer ad sales people trying to shake down local businesses so that they offer Yelp protection money to keep their ratings positive.
Companies like this always start with a noble purpose, before the pressure to monetize causes them to ruin what was once a valuable service.
Not sure why you're downvoted. The general public (including OP) still believes that Yelp manages reviews differently for businesses that purchase advertising.
There is zero physical evidence that Yelp does or ever did this. The only thing that Yelp ever did was move one positive review to the top of the page for advertisers, and I'm pretty sure they abandoned that practice a long time ago.
It's pretty obvious to me that unsophisticated business owners are simply drawing false inferences when they receive a sales call and then receive a negative review. Confirmation bias at work.
Ok, just keep pretending it isn't happening. But the owners of thousands of small cafes & restaurants would bend your ear for hours with bullshit they have to deal with.
To summarize: Yelp account exec shared another business owner's stats with Louis. Louis reported this privacy violation to Yelp and the account exec got fired. The fired account exec took it personally and got her friends to write negative reviews on Louis's Yelp page.
This actually convinced me that Yelp is probably unfairly being targeted. I had come into this thinking that they were in fact unethical.
However, this video very clearly shows a family who incorrectly blames the business owner for one of their members losing a job. Yelp fired them, as they should have.
Just pointing out what I had heard when I was subscribed to someone who had experiences with Yelp. Honestly, I found his latest video on the subject, after searching for 'yelp extortion,' which doesn't appear to be the best one to start with.
https://youtu.be/BHEbVh3Yhrw?t=442 may be better, as he talks with two of the people behind the movie Billion Dollar Bully. (I didn't re-watch it completely, as I don't want to get myself wrapped back up in his world.)
As it notes in https://slate.com/technology/2019/06/billion-dollar-bully-do... and the above, if Yelp's culture means that employees are getting away with it, and sharing that, and tend to work with people who aren't web-savvy, there's certainly the opportunity for certain individuals within the company to give the company a bad name.
For-profit businesses, especially ones that want everyone to use them, generally don't like to talk about the fact that some part of why they exist is for the money and/or they have stakeholders that want to see a return on their investment.
It's also possible that Yelp has since gotten better, and they're still fighting off the old perspectives. Not OP so not sure where their evidence came from.
(I personally rarely use Yelp, don't have an account, and prefer the reviews built into Google Maps since that's my navigation app of choice. I didn't know about issues with Yelp until I was subscribed about the above, and after unsubscribing numerous months ago haven't heard anything else about Yelp until now.)
i just watched the video and it seems more like the story of an ex-employee being upset at the narrator for being involved in their termination (due to arguably bad judgement).
For Yelp it seems like it's more of a failure to innovate and grow beyond their initial review site concept. The idea was good, but easily challengrd by others who bring additional utility to the table like OpenTable and Google Maps.
I don't see it that way. It's a review site. There is no need for it to innovate beyond that, nor is there any basis for thinking that reviews should be enough to take a company public.
If they're doing that, then you know that the end goal is ads, ads, ads.
I see it differently: Yelp has built a platform that has a large audience. If you don't pay for certain things then you don't get visibility in their platform. Everyone from Google to Capterra does some version of the same thing. You can call it "shaking down" local businesses but no one is entitled to positive or even fair promotion on someone else's platform.
There are numerous accounts of businesses receiving calls from Yelp salespeople essentially telling them to buy an ad package or the negative reviews get prioritized.
I agree that no one is entitled to positive promotion, but to argue that a massive platform that's established itself as the go-to place for consumer business reviews absolutely should be held to fair promotion.
I can't believe that this an argument on HN. You're saying that if you had a small business with a Yelp profile and I found your identity and started posting false negative reviews on your business profile, you'd have no problem being called by a Yelp rep to pay money to make them go away?
> There are numerous accounts of businesses receiving calls from Yelp salespeople essentially telling them to buy an ad package or the negative reviews get prioritized.
Sure, there are numerous accounts (read:hearsay) but there's zero physical or hard evidence.
After all this press, don't you think there'd be at least one recorded phone conversation or email that showed up in the numerous lawsuits' discovery processes?
There is literally zero physical evidence corroborating Yelp account execs' extortive practices.
Louis also found negative reviews from people who didn't live in his community and who were also friends with the Yelp salespeople who attempted to solicit business from Louis, which is so egregious.
I acknowledged that in my previous comment. All the fake reviews were written by friends of the fired sales rep.
Basically, Louis got the rep fired, and the rep went haywire. This doesn't suggest Yelp has extortive sales practices. If anything, Yelp made the right decision to fire this sales rep who breached privacy protocol.
You’ve moved the goalposts here though. You first argued how none of these small business owners brought forward evidence and therefore this isn’t a real scandal, and then you concede that this is a legitimate example but Yelp handled it correctly by firing the rep.
When hundreds of small business owners make accusations against one company like this, and people like Louis being tangible evidence forward, a full investigation of these practices is warranted, which hasn’t happened yet, to my knowledge.
This smells like a toxic sales culture that enables people to take advantage of small businesses as long as they don’t get caught. Many small business owners probably don’t have the energy or ability to do the research that Louis did, but his findings were pretty shocking.
How many more small business owners need to take time away from revenue generating activity to discover this kind of coordination before you’re satisfied that there’s a real issue here?
> You’ve moved the goalposts here though. You first argued how none of these small business owners brought forward evidence and therefore this isn’t a real scandal.
I never moved the goalpost. My claim has always been that there is zero physical evidence of Yelp extorting small businesses.
The posted video is not evidence of Yelp extorting business. It's an example of a fired Yelp employee blaming a business owner for getting fired, and taking it out on the business owner's Yelp page. That is not extortion on behalf of Yelp.
> When hundreds of small business owners make accusations against one company like this, and people like Louis being tangible evidence forward, a full investigation of these practices is warranted, which hasn’t happened yet, to my knowledge.
There have been countless lawsuits filed against Yelp for extortion. All of them have been dismissed -- not settled; dismissed. Google is your friend.
Why shouldn't negative reviews get priority? I'm not simply playing devils advocate but genuinely curious. If I go to a restaurant and there are 100 reviews that break essentially as 80 good, 10 mediocre, and 10 "there are rats in the kitchen" then dont all of them have SOMETHING useful for me? And an average star rating system blends that utility? Positive reviews are dishonest as often as negative reviews I would guess. And negative reviews are as honest as often as positive reviews as well I would guess.
You can already spread false rumors about anyone or anything with your Facebook, Instagram, or Twitter. There's very little stopping you (within reason, of course).
Ha good luck suing for defamation for every random tweet and internet comment from a bunch of random nobodies. That's neither possible nor sustainable.
Oh you're right I guess this situation would only really apply to large identifiable entities, like maybe tech corporations that selectively surface and moderate reviews.
I’m not sure if they do this as I’m not willing to pay to find out. But when their salesperson called me I had a discussion with them about how the first review that shows up, the one that’s a thumbnail when my business appears on other listings, is from 2012 and pertains to the business before I bought it and changed management. Not just that but it’s clearly a vengeful review written by a crazy person. I told them that I have no interest in making my profile more visible if that is what Yelp considers a quality review. (As usual, all of the decent reviews are “hidden”.) My good reviews were unsolicited.
If Yelp is in trouble, maybe their quality should get another look.
>Companies like this always start with a noble purpose, before the pressure to monetize causes them to ruin what was once a valuable service.
Google, Facebook, Amazon, etc.
Hell, maybe you can argue Netflix's algorithms have taken a turn for the worse, but to their credit Netflix is the only FAANG+ company (not that Yelp is in this bucket) which really hasn't "gotten evil" over time
The Yellow Pages used to do the same thing before the internet. There is always money in being a monopoly of something. The problem for Yelp (and really, most other platform companies) is they are beholden to G, the mother of all monopolies, who can cut off their gravy train at a moment's notice.
Someone I work with from another company just messaged me that they are being furloughed for a couple of months. I wonder how many of these furloughs are going to end up in layoffs.
It'll depend a lot on how long the pandemic lasts.
I know a few friends that work for a major retail company that have been furloughed. Those will definitely turn to layoffs if this keeps going too much longer.
With all these lays off it’s going harder to find a job and companies probably try to force pay cuts for the roles they are hiring because of it. Bad time to be jobless; sadly I am in this situation:(
Yelp is accused of predatory practices on business owners including pushing them to sign up for a paid subscription to hide negative reviews on their Yelp page. Otherwise, you are vulnerable to their algorithm which hides/shows reviews that are often less than favorable. Yelp reviews are now overtaking business' own pages on Google searches leaving businesses with less option to control, let alone, curate their brand's messaging.
My friends who own or help run local small businesses have told me it happened to them, so I believe my friends. Of course, it's not explicit extortion like "pay us $500 a month or else", so there's no hard evidence for anything. Instead, magically not too long after they refuse a cold-call sales pitch, they have a bunch of bad/fraudulent reviews surface to the top of their Yelp page and then get another sales call later on.
I would hardly call them credible reports. It's easy to see how business owners could draw false inferences when they receive a Yelp sales call and coincidentally get a negative review shortly after.
Honestly, I thought this was long since debunked. There is no physical evidence of Yelp sales execs extorting small businesses.
They're not just hiding negative reviews if you pay, they are hiding legitimate positive reviews if you don't. It's simply the online equivalent of the mob asking for protection money.
This just is not true. I have worked with a number of companies that have tried to pay Yelp to unhide their legitimate, positive reviews and there was nothing Yelp would do about it, no matter what proof you offered of the transaction or customer relationship.
Their algorithm rules all, sales has zero say in it.
If you’re so inclined, you can look up your local Denny’s for proof of the opposite. They are a big time advertiser with pretty poor reviews on average.
In addition to other things mentioned in this threat, Yelp recently set up unsolicited GoFundMes for restaurants, and while their intent may not have been sinister, restaurant owners were NOT fond of the move: https://www.eater.com/2020/3/27/21196593/yelp-gofundme-autom...
The hiding of positive and negative reviews if you don't/do pay is hard to prove, but one thing incredibly shady thing that Yelp does and is proud of is:
They will prominently display ads containing positive reviews for competitors on a business's page unless that business pays Yelp.
Wait Yelp has 6000 employees? They haven’t changed their site in a decade! What percentage of that is engineering? Seriously, I thought they have maybe 1000 at best.
Have you (and anyone else posting this same exact comment on any article that mentions employee count) ever worked at a large company? Once things operate at a large enough scale, it requires dedicated teams to focus on very specific parts of the application.
Take SEO for example, it's not just putting H1 and title tags on every page. You most likely have dedicated services that are generating millions of sitemaps, daily. You probably have separate infrastructure dedicated to serving the crawlers so that you can optimize the content and aren't serving your users and bots from the same pool of resources. You have analytics dedicated to monitoring the crawlers and running tests / adjustments as you see results. You likely have services that generate the SEO data for every page (meta tags, titles, canonical links, headings, etc). And in addition to this you have AB testing, legacy systems, and technical debt to deal with.
My point is, it's easy to brush these things off as unnecessary and large company waste (and some of it might be) but to say things like "It's just a CRUD app, why do they need a 1000 engineers. I could do it with 10" is ignoring the vast complexity involved in running at scale.
meanwhile I am sure other companies running an app that is comparable to yelp scale do so with much fewer engineers. Whatsapp comes to mind as an obvious example.
They have a cold calling sales staff mostly comprised of interns or new grads. They call up restaurants and try to up sell them on some package, I don’t know the details. They aren’t paid well.
If you’re so inclined, you can look up your local Denny’s for proof of the opposite. They are a big time advertiser with pretty poor reviews on average.
Yelp basically replaced the Yellow pages and Zagat with a bit of the BBB thrown in for good measure. Its model is to sell listing services to businesses. I am guessing it is a sales heavy org.
If anyone can "explain" it, they should go get filthy rich. But we can speculate in a semi-educated way. I think my best speculation is that the economy's fall factored in uncertainty about how bad this really is. The sell-off was based on worst case scenarios (given such high uncertainty).
Now that uncertainty is going down as we understand it all better, have more data, have plans in place, the economy is recovering to a more accurate, "this is actually what this whole ordeal will cost us"
You're missing the most important factor - the trillions of dollars being injected into the market, and into various companies by the Fed, with no due diligence as to whether or not they will be spent well.
When there's so much stupid money being pumped into the system, why would the fundamentals, like unemployment, lack of consumer demand, gdp contraction, expected dividends, etc, etc, matter?
We could all be out of work, trading bottlecaps for packets of ramen for the next year, but as long as the fed keeps printing a million dollars for every 3 unemployment claims, the markets will be soaring.
(I should point out that because the USD is a world reserve currency, and has very large amounts of it in circulation, this won't even result in hyperinflation.)
Spot price does nothing to measure uncertainty. Volatility is still very high which means, by definition, we are in an uncertain market.
A much better explanation for the dow rising is the opposite of what you propose: we don't really know how this will impact things so it's very hard to price all of this in. Investors already known that unemployment claims this week would be awful so that information is already priced in, but we're still really waiting on information about how all of these impacts will impact businesses as a whole.
Maybe. Personally, I think the median investor, especially the median short term investor, tends to be more optimistic than the rational market hypothesis would argue. Information availability isn't symmetric, and the news sources favored by these people tend to paint rosier pictures of the recovery than seem likely.
I mean, one very straightforward interpretation of the headline of this linked article is that Yelp will be seeing a 30-40% shortfall in revenue for the medium term future (i.e. long enough to make the firing and hiring process worthwhile). At its worst, the market was guessing at a 38% drop in valuation, and it's now recovered significantly from that.
My guess, and no I'm not buying puts to test it, is that we're going to see another series of shocks to the market when the revenue numbers start being reported and the big employers start running out of money and shutting things down.
Right now the immediate job losses are all in the service sector and small employers, and those jobs are basically invisible to your typical trader bro.
I agree. For example, we have just started to see only some of the second-order effects, as a huge number of people missed their April rent payments, and mortgage default rates started to shoot upwards. Consumer spending is similarly tanking; people can't buy the newest iPhones when they don't have jobs.
I think Q1 numbers will start to shake people out of their optimism. We'll see.
> Right now the immediate job losses are all in the service sector and small employers, and those jobs are basically invisible to your typical trader bro.
Most of this activity is driven by robotic trades by institutional investors. It's largely quantitative. Whether the quantitative priors are accurate, is debatable.
I don't buy that. Objective quantitative analysis based on models that don't know about the pandemic should be pricing in a disastrous 30% unemployment, and clearly the market is not.
I'm not in the industry, but I have to believe the quants are doing what all of us are: they're throwing out the models, rewriting stuff where possible, but basically just guessing like the rest of us. And that process is a victim of their own subjectivity. And this is not just a demographic well-positioned to have a good, objective understanding of epidemiology.
Basically that's just a long winded way to say: wall street isn't looking at this correctly and is going to be surprised when quarterly results don't show the recovery they're expecting.
> Objective quantitative analysis based on models that don't know about the pandemic should be pricing in a disastrous 30% unemployment, and clearly the market is not.
That's not necessarily true. First of all, 30% unemployment, while a big scary unprecedented number, represents the expected outcome of the official policy of all governments (Federal & State) , which is forced unemployment. The CARES stimulus includes a $600/week unemployment insurance _on top of_ the existing state UI. In every state, the unemployment benefit is actually higher than the median wage [1]. Businesses know this, and proactively lay off / furlough their employees so that they may collect this benefit, with the intention of having them be first-in-line for re-hiring once this all passes. The other half of the CARES stimulus includes forgivable loans to businesses with the hope that those loans can keep businesses afloat so that they may be in a position to re-hire once this all passes. Put simply, because half the stimulus is in the form of direct insurance payments to people, and unemployment is the means of receiving that, you will see high unemployment numbers. Not only is this expected, it is intended.
All this being said, it's still not certain that many of these businesses will be able to survive even with the loans/stimulus, nobody knows for sure. The market doesn't price in the scary 30% unemployment number, it prices in the expectation that this number will fall back to usual levels by next year.
The grandparent comment asked why the Dow increased today, and it's because the Fed announced $2.3T in new small-business loans, which slightly increases the percentage of businesses that may be able to weather this storm.
>> I think my best speculation is that the economy's fall factored in uncertainty about how bad this really is.
I don't think anyone really understands how bad things are, and the only reason fears have abated is because everyone is operating under the assumption that the country will "open back up" later this month or next month, and things will largely go back to normal in the summer. Once that sentiment erodes and reality sinks in, we can expect the stock market to sink with it.
It happens all the time during sell out (1929, 2008). At some point shorts close their positions en masse. It doesn't stop the market from falling further later...
My guess: because speculators are speculating that the recent severe dips in the stock market are undervaluing the economy and therefore are buying when it goes low, propping up the price. Speculators speculate that the pandemic has not actually destroyed any significant real value in the economy and will bounce back, therefore the stock dips are overreactions and are good buying opportunities.
1) pricing in the return of US manufacturing. In a pandemic, it's every country for themselves. We've outsourced items critical for national sovereignty and the ability to respond to crises. I think left and right agrees now, that's a risk which needs to be mitigated.
2) govt has unprecedented support, in terms of small business loans and benefits
3) bonds and stocks are usually inversely correlated, they are not because the fed is buying up a significant portion of the debt, at low rates. Meaning your not getting much return if you hold bonds.
4) Capital flight from foreign markets. If you can't trust China, and emerging markets are going to get hit worse, then the US is where you want your money.
5) Less uncertainty.
6) More speculation that this virus is not as bad as we think. We're well below the expected deaths on the models, which means the models are wrong, by a factor of multiples.
Probably because this crisis will consolidate corporate power in the hands of big business.
The divide between big and small business in this scenario is stark. For companies that have access to bond markets and the stock market massive amounts of cash are being deployed to prop things up.
Small businesses are in complete free fall, with a non-functional short term confusing payroll assistance loan plan that has yet to lend to anyone in effect.
The writing is very clearly on the wall. Hundreds of thousands of small businesses will fail, and that will further tip market share towards larger companies, conglomerates, chains, and similar.
When you invest in the stock market you are investing in those larger businesses.
Along with the cynical, pessimistic, and snarky answers, bear in mind the market does not reflect what is happening now. It reflects an averaged, time-value-of-money-weighted assessment of what the market participants think it's going to happen in the future.
So, despite what you may naturally think, the market crash wasn't reflecting the fact many people aren't working right now, it was reflecting the fear that we could be knocked out for months. Now fears about the worst-case scenario are receding, so the time-averaged result rises as the result of the worst bottom elements lifting, even if the overall assessment is still problematic.
The FED announced a huge new stimulus package (as did the Bank of England earlier today).
I'm also surprised because I'd expect stocks to tank because that's what would make economic sense to me. People at home, not spending money, unemployment soaring. So far I'd assume this situation has more of an impact on the actual economy than the financial crisis but the market seems to disagree.
I guess the lesson here is that FED meddling/cheap money trumps all other factors. But that would mean eventually things should crash really fast.
The best lesson from "The Alchemy of Finance" (my favorite investment book) is that the market just represents the current bias, not the true situation but eventually converges to the true situation. That's subtle but hard to grasp. At least it was for me. Or in other words...what makes economic sense isn't necessarily reflected in the current market prices (as the efficient market hypothesis would suggest).
1.) The gov has shown they aren't willing to let the market tank.
2.) Many businesses are actually thriving right now via online orders. This means every part of their associated supply chains are thriving as well.
3.) This is a temporary revenue setback but will make it socially acceptable to layoff employees by the thousands...which will trim payrolls without losing an equivalent amount of production.
4.) Non-retired people wouldn't dare touch their 401k before they are 59 1/2, which are primarily comprised of stocks.
5.) The market is predicting a surge of activity once this is all over.
6.) This situation shook out any major bubbles that were forming (e.g. stock buybacks), and made the market more anti-fragile.
7.) People now see the value of having more goods on hand in their homes, which will probably mean increased initial spending when this is over.
Because the market is not pricing this as a signal that the "sum of all future free cash flow" is in jeopardy.
Governments all over the world have implemented financial relief to these companies by promising to shoulder the cost of wages through the normal unemployment benefit system. Companies taking advantage of that during this extraordinary period doesn't say much about what their profitability will look like after the lockdowns are over.
In fact, in some cases this could be evidence of a flexible company that is able to scale down quickly and is more likely to survive this and future demand shocks.
Birx continued, "is how important behavioral change is, and how amazing Americans are at adapting to and following through on these behavioral changes."
"That's what's changing the rate of new cases, and that's what will change the rate of mortality going forward," she said.
I can't find anything concrete there, but "already took into account" is a bit weaselly.
There had to be tons of uncertainty in a) how well people comply with the guidelines and b) how effective that compliance is. It certainly doesn't seem crazy to me more data would lead to revised values for those factors.
They could be more effective than originally expected. It could also just narrow the prediction interval--I'd bet that a lot of the "millions dead" stuff is reporting the high end, rather than the most likely outcome.
Yes, it seems it could either be "measures are more effective than thought" or "disease is not as severe as thought", or both.
Fwiw Michael Burry, someone who has earned the right to be listened to in the face of collective thinking, is strongly arguing for the "disease is not as severe as thought".
He makes the point that a) the new model has some optimistic assumptions, like no interstate travel and b) due to the exponential growth, a small uncertainty in R0 leads to wildly variable outcomes.
I guess I am uneasy with the "disease is not as severe" hypothesis because it's essentially unknowable. There's no objective measure of severity: it depends on knowing how to treat/prevent the disease and whether the necessary resources are available to do so.
While it varies with health care rationing, think CFR is still a useful measure of disease severity and allows us to situate COVID vs. the flu. Knowing the real CFR depends right now on how we calculate the denominator. Burry had analysis that 4% of the undiagnosed asymptomatic Danish population had COVID-19 per blood donation data, which suggests the CFR is 80x less severe than official figures in Denmark.
Anecdotally the disease entered countries weeks, arguably months before any cases were officially announced, making it likely that the denominator is an order of magnitude greater than official stats, and thus CFR an order of mag less severe.
FWIW, she said "almost perfectly" and "up to 200,000 deaths."
The revised model predicts up to ~127k deaths, which is certainly less, but not egregiously so (here: https://covid19.healthdata.org/united-states-of-america )
If you kept the model exactly the same, you'd nevertheless get tighter and tighter estimates (i.e., reduced uncertainty and a lower upper bound) as more data comes in. This is just how statistics works.
Moreover, we're presumably learning stuff as we go (e.g., putting patients prone seems to work better than on their backs), so the survival rate itself is (hopefully) not stationary.
Has anyone seriously suggested that the US’s measures are being carried out anywhere near “almost perfectly”? Quite the opposite, there’s been lots of concerns voiced that people aren’t taking this seriously.
> The revised model predicts up to ~127k deaths, which is certainly less, but not egregiously so
1) Are the policy implications of potentially killing off all of (say) Salt Lake City much different from destroying New Haven? I would argue no, not really.
2) Biological data is often a nightmare to work with. Estimates about behavior too. Getting something within an order of magnitude is often not too shabby.
3) Errors ('up to') are sensitive.
Here's a toy example. Suppose you think two numbers are each around 5, but the data are consistent with anywhere between 0-10. The sum of these numbers must be between 0-20 (low case: 0 + 0 = 0, high: 10 + 10 = 20), and their product between 0-100 (0 x 0 = 0; 10 x 10 = 100).
More data comes in and you can estimate each value more precisely: now you know they're somewhere between 4-6. You know the sum is actually between 8-12, and the product between 16-36. That's a massive decrease in the upper bound (64 percent for the product!) but literally nothing has changed except for the increased precision.
The COVID models have exactly this problem--none of the parameters are known exactly--and the outcome is some function of combining them. Moreoever, we're learning more about what factors matter AND how to fight the virus.
Any decent statistical model like this should include a confidence interval , if biological is so difficult then the CI would have reflected that . This just seems poor science to me
The 200k/127k people are harping about IS THE CONFIDENCE INTERVAL (well, the upper half of it, hence "up to").
That's half of my point--you'd expect the confidence interval to narrow with more data, regardless of what's going on. On top of that, you've got model error and non-stationarity (e.g., better care is discovered, driving the mortality rate down), which can't be reflected in the confidence interval.
Company announces bad news and then the stock price goes UP. WTF?
This often seems counter-intuitive but is pretty simple to understand if you keep in mind that markets are always forward looking. For instance, if Company A typically makes $1m in profits each year, you can ascribe a value to it. However, if at some point, you suspect that their profit is going to drop 80%, you are going to devalue their stock accordingly. However, if the company announces that their profit "only" dropped by 60%, you have likely undervalued them (since you thought it would be worse) and it makes sense for you to increase their price.
So to get back to your initial question, the answer is the market thinks, right now, that things will not be as bad as they initially assessed.
I think most of the time stock prices go up when layoffs are announced. If a company releases bad news about the business and simultaneously lays people off, that's a different story. But layoffs are seen as cost-cutting, and an indication that the company will be more profitable (or at least lose less money) in the future.
Maybe you missed the ~40% drop it sustained in about a month's time? That happened when it looked like the world was ending and 2 million people were supposed to die in the US. Now that things are looking better, the stock market is improving.
The market is reactive to relatively short-term inputs. I'm looking at a few things that are causing the jump:
- Some of it is inflationary as others have pointed out. There's a lot of money entering the system right now, and markets tend to go up on that
- Some of it is short sellers realizing gains from the last month and exiting their trades (the effect of closing a short causes markets to rise)
- Some of it is psychological reactions to dropping death estimates, and concurrent optimism that things will go back to "normal" soon (or at least sooner than previously thought)
What the market did 12/21/18 is sort of irrelevant
Because of business loans and tax breaks it looks like companies will come out of this profitable and the government will pay for the workers during this period.
In times of great uncertainty or upheaval, markets fluctuate up and down pretty wildly.
Everybody realizes it should adjust to some new value to reflect the new reality. But nobody knows what that value is. So nobody is sure if the market has adjusted too far or not enough.
So any time any new information comes in, people grasp at straws trying to make sense of the situation (and/or decide they have to act despite very limited information), and the market goes up and down.
It doesn't just move smoothly in one direction and then gradually come to a stop once it finally reaches the new "correct"(-ish) value. It jerks back and forth as it gets there. So even when down is the inevitable direction, it's going to have a few ups mixed in.
It has been like this for days. Super weird, of course there are explanations, i am just not sure if they are correct.
So apparently the fed announced more financial measures. Which might cause some optimism. Also rumour has it there is a chance that the oil 'crisis' will be solved.
Also investors might be short sighted and think this will only take a few months. Who knows.
To me it feels totally incorrect, reading all the other news would mean stocks should go down. This crisis is a bit different though, it is not a financial crisis, which takes a while until it hits the real economy. I think nobody is entirely sure what is happening.
Every 10 years or so there is a 'catastrophic' event, so markets fluctuate, players are invited to get out, new players emerge and life goes on and on and on
Next one is around 2030 - see ya !
Constant revolutionising of production, uninterrupted disturbance of all social conditions, everlasting uncertainty and agitation distinguish the bourgeois epoch from all earlier ones. All fixed, fast-frozen relations, with their train of ancient and venerable prejudices and opinions, are swept away, all new-formed ones become antiquated before they can ossify. All that is solid melts into air, all that is holy is profaned, and man is at last compelled to face with sober senses his real conditions of life, and his relations with his kind.
Quarterly earnings coming out, better than expected numbers of covid-19 deaths compared to initial models, rumors that 2nd stimulus bill is to expand small business loans liquidity program.
Liquidity injections from central banks, federal governments, risks of the virus are starting to be known, stairs up & elevator down tends to lead to an over reaction, price discovery, oil cuts possibly happening today with OPEC, the FED announced +2T in purchasing of junk debt this morning, and there are going to be companies coming out of this much stronger than before.
This is the part that completely evades me. The economy ground to a halt worldwide, 6 million new unemployment claims are processed every week in the US, established startups are on life support, more and more small businesses are collapsing...
My guess is hope that we are almost through the worst of this and as yesterday Hopkins announced trial a possible treatment - people are also trying to get in while it is low
my guess is that people that are well off (rich) still have their income stream. A lot of tech workers, CEOs, etc are working from home. It's poor (or middle class) people (working in retail, tourism, food) that are disproportionately affected by this. In 2008, it hit rich people first, then "trickled down". So, the rich are seeing this as an opportunity to offload some extra cash onto the discounted markets.
Totally out of my field here, but is it possible the stock market doesn’t actually track the economy anymore? Stocks don’t pay dividends that often nowadays; it doesn’t seem to be so much an investment as a guess about where other people think the price is going to go. I mean, what does Bitcoin track, or the price of art? It almost seems arbitrary.
Since big companies can raise capital with really low interest rates... isn't the stock market basically a big Casino game? Name of the game is to guess what everybody else is gonna do and come out ahead. Most are just investing for a return. Seems pointless.
"Anymore"... It never really did. The two are correlated somewhat, but there has always been a great variance within that correlation, and it is no different now.
> Can anyone explain why the dow jones is going up?
That's easy: the market is betting the "help" is another mass wealth transfer from the bottom half of the population to the top half of the population. This happened every time we had a crisis. Why would a rational investor thing it would be different this time?
The printing presses are printing trillions of dollars. Some of that is going out in what are essentially hand-outs (Which is fine), some of it is going out to buy equities (Which drives the prices up, and is absolutely disgusting), and some of it is going out in the form of loans to dead businesses which will have to be repaid (Which props up the market in the short term, but will turn the economy into a debt-servicing zombie over the next decade).
Trump is desperate to not let the markets drop as part of his legacy, and the fed is doing everything in their power to not let the markets drop... Regardless of the long-term consequences. This is, of course, purely a coincidence.
That's why you can have 16 million unemployed in two weeks, another two months of shutdown on the horizon, nobody buying anything, everyone sitting at home, landlords not getting paid, and yet have the market partying like it's 999.
Because Ackman made a 1.5 billion dollar bet on a fast recovery, meaning that he invested this money into the markets. The stock market is not a good indicator of economic stability, but rather an indicator of how the top 2% of wealth in America is doing.
The Federal Reserve is printing $90B per day (on average) in open-ended QE. This liquidity is used to take agency paper and treasuries off the hands of primary dealers and hedge funds. In turn, the managers of these organizations refuse to sit on cash, so they grab other assets. Some (large) percentage of these assets will be equities.
Anecdotally, retail investors also appear to be buying the dip in volume, though we need more recent fund flows data to see if reality reflects anecdotes.
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