In the midst of its chaotic run, Meta (FKA Facebook) on Wednesday announced it would be cutting over 11,000 jobs which amount to about 13% of its workforce.
This came after the company realized the demise of its ambitious metaverse project which doesn’t seem to be going anywhere.
Although Meta isn’t the first company in the tech industry to conduct a mass layoff in the year 2022, the recently acquired Twitter by Elon Musk had the same run, and then Microsoft and even Snap Inc.
Apart from the failure of Meta to persuade people to make use of its metaverse VR social project, the company is also seeing market failure due to the adverse effect of COVID-19.
Speaking of COVID-19, the company was among those that aggressively hired a bunch of workers during the pandemic to meet the surge in social media consumption as millions were confined to their homes with nowhere to turn to other than the internet.
The post-COVID effect is catching up with every industry including the tech industry and especially Meta whose advertisers are now plugging their expenses over the soaring costs and rapidly rising interest rates.
“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,” Chief Executive Officer Mark Zuckerberg said in a message to employees.
“I got this wrong, and I take responsibility for that.”
Zuckerberg addressed employees on Wednesday about the job cut while he took no questions. He never deviated from the script that was later on posted on the company’s blog that stated that his company had made a big mistake in planning…whatever that means.
But he promised to host another meeting by Friday where he will be well-prepared to answer questions.
The company has lost over US$700 billion of its valuation dropping it to just US$256 billion all the way from US$1 trillion.
Meta shares rose 4% on Wednesday as investors cheered caution by a company that has been pinning its future on the metaverse with pricey investments that Zuckerberg himself says will take a decade to bear fruit.
“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 said.
By 2023, the company expects expenses of US$94 billion to US$100 million unlike the previous US$96 billion US$101 billion. It also narrowed its 2023 capital expenditures forecast range.
Apart from job cuts, the company will also reduce its office space, lower discretionary spending, and extend a hiring freeze into the first quarter to rein in expenses.
Meta burnt through its cash supply
Although most people aren’t necessarily intrigued by the metaverse as of now, the company isn’t outright dropping the project as it’s still working on the Reality Labs unit where it tests out the metaverse.
Between the months of January and September, the company has lost over US$9 billion and that is expected to even grow significantly by the year 2023.
The spending spree has drawn the ire of Wall Street and shareholders, with one investor recently calling the investments “super-sized and terrifying.” Analysts have also questioned how long Meta can pour money into the project in a weak economy.
“They’re going to have to continue to rightsize. … Next year is going to be a difficult environment for them,” said Paul McCarthy at Kisco Capital, which previously owned Meta shares.
McCarthy also added that he’d been skeptical about the whole metaverse project and that rising interest rates and a gloomy macro environment could continue to weigh on the ad market.
Meta will however pay 16 weeks of base pay and two additional weeks for every year of service as part of the severance package.
Affected employees will also receive shares that were set to vest on Nov. 15th and healthcare coverage for six months.
The company did not disclose the exact charge for the layoffs, but said the figure was included in its previously announced 2022 expense outlook of between $85 billion and $87 billion.
The Apple and privacy effect
When Apple announced that it was going to introduce an opt-in-only privacy system that allows users of iPhones to allow their data to be collected by third-party services such as Facebook, the latter knew it had hit a rough path.
Meta has since lost billions of dollars in ad revenue because it just couldn’t access the information it could simply access back then.
This can be equated to why Zuckerberg is obsessed with the metaverse and being one of the companies that build both the software and hardware of the system through its acquisition of Oculus VR.
But there is the trust factor as far as Meta is concerned – something which prompted it to rebrand from Facebook in the first place.
Apart from that, the VR part of technology just doesn’t seem to be going anywhere, or at least not at the pace that it was expected to grow.
Coupled with the current state of the economy, one might say the company has hit a bumpy road and the ride could last a while.