I will assume you are asking in good faith, so here goes.
What you think of as "profit" -- e.g. just some random, arbitrary, completely free bonus that Google should be grateful to have at all -- is actually the cost of capital for Google. It is a payment to equity, and the amount of the payment is determined by the interest rate as well as the time path of expected future earnings, adjustment for risk, and other factors. The presence of these other confounding factors often confuse people and make them think profits are arbitrary. They are not. Just because something is complex doesn't mean it is random.
Now when the interest rate increases, that required payment goes up, because investors always have a choice of buying a share of google or buying a bond, and if the bond pays 7%, then buying a share of google should also give you 7%. Now, that 7% could be taken as future growth, as a number of things, but it still needs to be competitive with the bond, which is itself set by government policy in setting interest rates for the economy in such a way as to limit inflation. So we see that companies paying employees a lot of money without actually generating profits is related to inflation. Stop and think about it.
Recently, the government has not been doing a very good job of this and has set the rates -- the payments -- too low, causing inflation to be too high. It's now trying to correct, raise the rates, and so the required cost of capital -- the required profits of companies like Google -- have to increase.
Now suppose Google doesn't do that, e.g. it says "these profits are enough and you should be glad to have them". What investors do is say "well, I'd rather buy the bond" and so they sell their google shares and buy bonds, and in this way the value of Google falls up until the profit rate (profits divided by market price) is compatible with the bond. Well, so what? If Google shares sell for a dollar, who cares, since all that matters is that there be no layoffs, right? Well, when the market share falls below the liquidation value of the company, investors buy up the outstanding shares and liquidate the company. But long before that, there are lot of mechanisms -- e.g. stock options, voting on the corporate board -- that are designed to encourage decision makers to be aligned with the interests of shareholders so that you generally do not see companies trading for less than their scrap value for very long. And this does not need to happen to the whole company, most will scrap unprofitable divisions and projects and not stick their heads in the sand and wait for the whole company to be scrapped. What's an example of a company that has a ton of unprofitable projects? Hmm, one such name comes to mind.
So now we see why, when interest rates go up, businesses struggle to increase their profit margins -- and those that do not go out of business. It is no different for the farmer that needs to earn a higher return on his crop when interest rates rise, so the business needs to earn higher margins when interest rates rise as well. The higher interest rates cause a reduction in investment, which generates a reduction in spending and they incentivize more savings (deferral of spending), and in this way they reduce inflation, which everyone is complaining about as it hurts workers' standard of living.
Couldn’t Google adopt a wait-and-see approach for a few quarters, if all of this was propped up by interest rates to begin with? Maybe instead of reflexively panic-layoffs they could have some sort of longer term strategy to see if the Fed reversed course in a matter of months, which has been speculated already. Why are these megacorps so dependent on the flighty whims of investors, who themselves sat by and allowed the companies to overhire and possibly demanded such a short-sighted risk?
I see some other comments have mentioned this shareholder myopia.
The "payment" can be taken in the form of higher share price, share buybacks, dividends, future dividends, etc.
It does not have take one specific form or another. Despite the fact that Google doesn't pay dividends, it's not a charity. Investors purchase shares of Google in order to get a return, and they have a choice between buying Google or a mortgage bond or ATT, etc.
Now for growth companies like Google, they are effectively "paying" investors with promises of stock price appreciation and high future dividends. This is why they are more sensitive to stock price declines than income investments like a cable company. It's a two edged sword - they are faster to hire and faster to fire and are more responsive to their share price.
At some point, the growth companies discover they need to start paying dividends or doing regular share buybacks in order to stabilize their price, when their growth story is no longer believed by the market.
Well, so in theory they could have used some of the billions they have on hand to start a dividend to prop up the stock price while making their own decisions about staffing.
This narrative that the market forced them to do layoffs feels flimsy when they have so much money, doesn't it? They had other options.
> This narrative that the market forced them to do layoffs feels flimsy when they have so much money, doesn't it? They had other options.
The options they have is to abandon positioning themselves as a growth stock and say "we are now an income stock". You are right, this is a valid choice.
But think a little about what this would mean for Google. This is a company that has one cash cow -- Search. Pretty much everything else is losing money. But only a small share of Google employees are actually needed to run search. So if they tell the market "We are no longer a growth stock", then why are they spending all this money on money losing projects? The rationale up until now was that these are moonshots where some of them would turn into the next big search. That's what a growth company does, but not what an income generating company does.
So my guess is that Google does not want to transition to being an income earning company because that would require laying off a lot more people. You can lay off 80% of Google's staff and just keep search, and then turn those profits over to investors. Google does not do that because it is still promising growth.
But I agree that at some point, the market isn't going to accept the growth story for Google, and this type of transition will happen. Google has also been sucking up a lot of first class talent and putting them to work on money losing projects without a lot to show for it. Those top developers really belong elsewhere, from an economic efficiency point of view -- they should be working on things that really are legit growth opportunities.
What you think of as "profit" -- e.g. just some random, arbitrary, completely free bonus that Google should be grateful to have at all -- is actually the cost of capital for Google. It is a payment to equity, and the amount of the payment is determined by the interest rate as well as the time path of expected future earnings, adjustment for risk, and other factors. The presence of these other confounding factors often confuse people and make them think profits are arbitrary. They are not. Just because something is complex doesn't mean it is random.
Now when the interest rate increases, that required payment goes up, because investors always have a choice of buying a share of google or buying a bond, and if the bond pays 7%, then buying a share of google should also give you 7%. Now, that 7% could be taken as future growth, as a number of things, but it still needs to be competitive with the bond, which is itself set by government policy in setting interest rates for the economy in such a way as to limit inflation. So we see that companies paying employees a lot of money without actually generating profits is related to inflation. Stop and think about it.
Recently, the government has not been doing a very good job of this and has set the rates -- the payments -- too low, causing inflation to be too high. It's now trying to correct, raise the rates, and so the required cost of capital -- the required profits of companies like Google -- have to increase.
Now suppose Google doesn't do that, e.g. it says "these profits are enough and you should be glad to have them". What investors do is say "well, I'd rather buy the bond" and so they sell their google shares and buy bonds, and in this way the value of Google falls up until the profit rate (profits divided by market price) is compatible with the bond. Well, so what? If Google shares sell for a dollar, who cares, since all that matters is that there be no layoffs, right? Well, when the market share falls below the liquidation value of the company, investors buy up the outstanding shares and liquidate the company. But long before that, there are lot of mechanisms -- e.g. stock options, voting on the corporate board -- that are designed to encourage decision makers to be aligned with the interests of shareholders so that you generally do not see companies trading for less than their scrap value for very long. And this does not need to happen to the whole company, most will scrap unprofitable divisions and projects and not stick their heads in the sand and wait for the whole company to be scrapped. What's an example of a company that has a ton of unprofitable projects? Hmm, one such name comes to mind.
So now we see why, when interest rates go up, businesses struggle to increase their profit margins -- and those that do not go out of business. It is no different for the farmer that needs to earn a higher return on his crop when interest rates rise, so the business needs to earn higher margins when interest rates rise as well. The higher interest rates cause a reduction in investment, which generates a reduction in spending and they incentivize more savings (deferral of spending), and in this way they reduce inflation, which everyone is complaining about as it hurts workers' standard of living.