How to trade layoff news?
 
There's been a lot of high profile layoffs as of late - from Amazon to Cisco to Carvana to Redfin and Meta. As the supply-demand balance swings back in line, companies are cutting costs to save cash and boost profits. The layoffs affect stock prices in different ways depending on the company's situation.
 
Layoffs are a bullish event for established companies with solid, existing businesses and profits as they are viewed as earnings per share boosts which increases valuations. The bigger the layoff, the bigger the earnings boost.
 
For companies with volatile business models prone to sharp cyclical fluctuations and low or no earnings, the layoffs are often interpreted by Wall Street as a failed business model. For those companies, the share prices often fall. 
 
Using the filters in the layoffs scenario, it's easy to see the differences in the event impacts and determine how to react to the latest layoff event. 



Layoffs are a typical part of a company's lifecycle and are often used to eliminate costs and poor performers while avoiding individual lawsuits. Fire a person and the company can be sued. But if they "restructure" and fire the whole division, no lawsuits may be filed. 


Often, activist investors push for layoffs to cut costs and streamline management and operations. Such was the case with Salesforce (CRM). When the activist investors bought shares in Salesforce, they pushed for layoffs and rewards for shareholders in the form of buybacks. They got it, and the stock price soared 60% on the back of these events.



Layoffs - when they don't signify a company's business model isn't working - provide the fastest increase in profit to a company. This increase can be immediately added to earnings per share and increase the value of the company - a value which is a factor of the multiple of earnings a person pays per share.


Let's use an example to make this clearer. A company with 100,000 workers and EPS of 8.00 on an annual basis announces they are laying off 20% of the company. Now let's assume the company is based in Silicon Valley and the average worker salary is $100,000.  The cost to a company for a worker making $100,000 is usually 100-150% times their salary. This is due to the overhead costs, taxes, insurance and administrative support required to keep that person employed.


For simplicity, let's assume the company's cost was 100% of the wage, making each employee cost $200,000. If the company fires 20% of the workforce, they are firing 20,000 workers and saving $200,000 per worker. That is a savings of $4,000,000,000. If the company has 1B shares outstanding, they just added $4.00 of earnings per share, effectively increasing the value of the company by 50%.


In actual events, a series of layoffs drove Meta's share price up over +100% in a matter of months as the narrative shifted from a company overspending to a value company making the necessary changes to drive profits.



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