Why is Meta laying off employees? What next for Facebook parent company?

Meta has laid off around 13 per cent of its workforce, CEO Mark Zuckerberg said in a letter to employees Wednesday.

Zuckerberg, explaining the job cuts of around 11,000 people to his employees, wrote he had decided to hire aggressively, anticipating rapid growth even after the pandemic ended.

“Unfortunately, this did not play out the way I expected,” Zuckerberg wrote. “Not only has online commerce returned to prior trends, but the macroeconomic downturn, increased competition, and ads signal loss have caused our revenue to be much lower than I’d expected. I got this wrong, and I take responsibility for that.”

The cuts come soon after significant layoffs at Twitter under its new owner Elon Musk.

Why is Meta making the job cuts?

For two main reasons.

First, social media companies went on a hiring spree during the pandemic.

That came after they received a financial boost during the pandemic lockdown era because more people stayed home and scrolled on their phones and computers.

But as the lockdowns ended and people started going outside again, revenue growth began to falter.

Second, Meta’s huge investment in the ‘metaverse’ – approximately $10 billion – has investors worried.

“In its earnings report last month, Meta disclosed that Reality Labs, the part of the company working on the metaverse, had $3.67 billion in operating losses. Reality Labs also experienced its lowest revenue since the final quarter of 2020. The company expects the operating losses for Reality Labs to increase next year,” The New York Times reported.

While Zuckerberg has claimed the metaverse,  an immersive digital universe, will eventually replace smartphones as the primary way people use technology, not all are convinced.

Spooked investors have sent company shares tumbling more than 71 per cent since the beginning of the year and the stock now trades at levels last seen in 2015.

An economic slowdown and a grim outlook for online advertising — by far Meta’s biggest revenue source — have contributed to Meta’s woes as well. This summer, Meta posted its first quarterly revenue decline in history, followed by another, bigger decline in the fall.

Some of the pain is company-specific, while some is tied to broader economic and technological forces.

Last week, Twitter laid off about half of its 7,500 employees, part of a chaotic overhaul as Musk took the helm. He tweeted that there was no choice but to cut the jobs “when the company is losing over $4M/day,” though did not provide details about the losses.

What happens next?

More pain.

Meta and its advertisers are bracing for a potential recession. There’s also the challenge of Apple’s privacy tools, which make it more difficult for social media platforms like Facebook, Instagram and Snap to track people without their consent and target ads to them.

Competition from TikTok is also an a growing threat as younger people flock to the video sharing app over Instagram, which Meta also owns.

“We’ve cut costs across our business, including scaling back budgets, reducing perks, and shrinking our real estate footprint,” Zuckerberg said. ”We’re restructuring teams to increase our efficiency. But these measures alone won’t bring our expenses in line with our revenue growth, so I’ve also made the hard decision to let people go.”

A hiring freeze at the company will be extended through the first quarter of 2023, Zuckerberg said. The company has also slashed its real estate footprint and he said that with so many employees working outside of the office, the company will transition to desk sharing for those that remain.

More cost cuts at Meta will be rolled out in coming months, Zuckerberg said.

Zuckerberg, however, has made it clear that his commitment to the metaverse remains unshaken.

“We’ve shifted more of our resources onto a smaller number of high priority growth areas — like our AI discovery engine, our ads and business platforms, and our long-term vision for the metaverse,” his letter said.

Zuckerberg promises 16 weeks of base pay, addresses visa issue

Zuckerberg told employees Wednesday that they will receive an email letting them know if they are among those being let go. Access to most company systems will be cut off for people losing their jobs, he said, due to the sensitive nature of that information.

“We’re keeping email addresses active throughout the day so everyone can say farewell,” Zuckerberg said.

Former employees will receive 16 weeks of base pay, plus two additional weeks for every year with the company, Zuckerberg said. Health insurance for those employees and their families will continue for six months.

The letter also addresses those in the US on visas.

“I know this is especially difficult if you’re here on a visa. There’s a notice period before termination and some visa grace periods, which means everyone will have time to make plans and work through their immigration status. We have dedicated immigration specialists to help guide you based on what you and your family need. Outside the US, support will be similar, and we’ll follow up soon with separate processes that take into account local employment laws,” the letter says.

Shares of Meta Platforms Inc. jumped nearly five per cent before the opening bell Wednesday.

“The market is breathing a sigh of relief that Meta’s management or Zuckerberg specifically seems to be heeding some advice, which is you need to take some of the steam out of the growing expenditure bill,” Hargreaves Lansdown analyst Sophie Lund-Yates was quoted as saying by Reuters.

She added, “It does not quite tally that you’re going to try and increase efficiency at the same time as chasing something as ambitious and as tenuous as the metaverse”.

With inputs from agencies

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