As the Facebook parent dug down on its risky metaverse gamble amid a collapsing advertising market and decades-high inflation, Meta Platforms Inc. announced on Wednesday that it would eliminate more than 11,000 jobs or 13% of its workforce.
One of the largest layoffs this year and the first in Meta’s 18-year history, these layoffs come on the heels of hundreds of job losses at other digital firms like Snap Inc., Elon Musk’s Twitter, Microsoft Corp., and Microsoft Corp.
Like its competitors, Meta hired actively during the epidemic to handle an increase in social media use by customers who were stuck at home. However, as a result of marketers and customers cutting down on purchases in response to escalating cost pressures and swiftly rising interest rates, its business has suffered this year.
“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.”
Meta, once worth more than a trillion dollars, is now valued at $256 billion after losing more than 70% of its value this year alone.
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.
The company will reduce office space, cut back on discretionary expenditure, and prolong a hiring freeze into the first quarter in addition to cutting jobs, which will disproportionately affect the business and recruiting teams.
However, a larger portion of the remaining funds will go to the Reality Labs division in charge of its investments in the metaverse. Between January and September of this year, the company lost $9.44 billion, and losses are projected to rise sharply in 2023.
Wall Street and shareholders are furious over the spending binge; one investor recently referred to the investments as “super-sized and terrifying.” Additionally, some have questioned how long Meta can continue to fund the endeavor in a struggling 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 added that he was skeptical about the company’s metaverse bets and that rising interest rates and a gloomy macro environment could continue to weigh on the ad market.
As part of the severance package, Meta will pay 16 weeks of base pay and two additional weeks for every year of service, as well as all remaining paid time off.
According to Meta, which had 87,314 employees as of the end of September, impacted employees will also receive their shares that were supposed to vest on Nov. 15 and healthcare coverage for six months.
The cost of the layoffs was not made public by the firm, but it was stated that it was covered by its previously stated estimate of between $85 billion and $87 billion in expenses for 2022.