“This is a sad moment, and there’s no way around that” said Mark Zuckerberg, Chief Executive as he made the announcement, 9th Nov 2022, that Meta Platforms Inc., the parent company of Facebook, Instagram and metaverse operation, Reality Labs, would be laying off 11,000 employees (around 13% of its 87,000 workforce).
This is the biggest round of layoffs in the company’s almost 19-year history ….. so, what’s the matter at Meta?
Simply put, a drop in advertising revenue and a sharp decline in profitability but there are several factors behind this dramatic change in fortunes.
Mr. Zuckerberg says he is fully accountable, admitting that he had badly overestimated the strength of the company and severely underestimated the ever-worsening global economy.
Meta’s stock has plunged by more than 70% this year. The company has blamed worsening macroeconomic trends, but investors have also been alarmed by its spending, particularly Mr. Zuckerberg’s multibillion-dollar bet on the metaverse as the next digital frontier. Reality Labs, Meta’s metaverse division has become infamous for the billions of dollars it has lost. The company’s share price climbed more than 6% on Wednesday after the layoffs were announced but remains well below expectations.
The company’s vast overspending clearly needs to be addressed. Zuckerberg has acknowledged that tighter fiscal discipline was needed sooner, and that the company’s enormous capital expenditure needs to be curbed. On the same day as it announced the redundancies, Meta cut the top end of its 2023 guidance for capital expenditures from a range of $37 billion to $39 billion as part of its cost-cutting initiatives. The new range is $34 billion to $37 billion.
There has certainly been some overexuberance on the hiring front. Meta had hired more than 15,000 people this year but the redundancies announced last week take the number of employees back to the kind of levels the company had on its payroll back in February. It is a huge deal, but it seems unlikely that mass layoffs alone are going to fix the problem they can carry legal risks and, if they’re not carefully implemented, spur damaging litigation battles.
Zuckerberg also highlighted increased competition, and ads signal loss as having negatively impacted revenue. Meta faces stiff competition with threats to its core social-media business from other apps such as ByteDance Ltd.’s TikTok.
Zuckerberg remains optimistic about the future of Meta. In his message to employees, he reiterated that he had faith in the overall strategic direction, saying “I believe we are deeply underestimated as a company today,” and adding “Our core business is among the most profitable ever built with huge potential ahead. And we’re leading in developing the technology to define the future of social connection and the next computing platform.”
It is not just Meta that is feeling the pain recently. The tech industry in general, is faced with rising inflation and sluggish demand from advertising. It has been a bull market for tech for over a decade now, but the sector is experiencing a seismic reversal of fortune. Over the past couple of weeks many tech companies have been forced to make layoffs, in some cases on a grand scale. For the year redundancies in the tech sector are estimated at over 120,000 (Layoffs.fyi)
Tech giants that recruited heavily throughout the pandemic, as life was pushed online and demand soared are now retrenching almost as quickly as they hired, wrong in assuming that the increase in online activity would continue and realising that they have been over optimistic about growth post pandemic.
Last week Amazon became the first public company in history to lose $1 trillion dollars in market value going from $1.88 trillion to $879 billion finally ending the week at $986 billion. All this despite having introduced a corporate recruitment freeze to cut costs.
Over at Twitter, having fired half the workforce (around 3,700 employees), new boss Elon Musk announced that the company was still overstaffed and warned that the economic picture was so dire that without a significant increase in subscription revenue there is a good chance the platform will not survive the looming global recession.
There is some glimmer of hope in all the doom and gloom for tech companies and their employees. Highly skilled IT professionals and engineers are still in high demand, and it is potentially a great moment for smaller start-ups to attract the top talent that they wouldn’t have been able to afford just a few months ago. We seem to have come full circle, trading in the huge salaries and perks or recent years for more shares in the ‘next big thing’. Oh, and It’s going to be very busy on LinkedIn over the coming months!