Meta Layoffs – Facebook Continues To Cut Costs By Cutting Headcount

Key things

  • Advertising revenue has begun to slow as fears of a 2023 recession mount.
  • Meta continues to lose a large amount of money in the creation of the meta version, approximately $9.4 billion in the first nine months of 2022.
  • There are no signs of a slowdown in spending that will impact the company’s bottom line.

Over the years, Meta has grown into one of the most valuable technology companies in the world. With Facebook, Instagram and WhatsApp, Meta has a firm foothold in the media ecosystem.

However, with the popularity of TikTok, things started to change. Meta saw a decline in daily active users for the first time in 18 years.

Add that to the weak economy, Apple’s privacy initiatives and Meta CEO Mark Zuckerberg’s full commitment to virtual reality, and the company’s fortress is showing cracks. In fact, it recently announced significant layoffs.

Here’s what you need to know about layoffs and why it might not be a one-time event unless things change soon.

Notice of dismissal

Meta laid off more than 11,000 employees in early November, reducing its workforce by 13% and enacting a hiring freeze until the first quarter of 2023. The layoffs will mostly come from Facebook, Instagram and WhatsApp, while the metaverse division will see fewer cuts.

The areas most affected are sales and recruitment teams. Meta had 87,314 employees at the end of September 2022. This was a 28% increase over the previous year.

Until the layoff, Meta was on a seemingly endless recruiting spree. Hiring top talent and offering unique employee benefits that included 30 days of paid vacation every five years went a long way.

The company is now cutting employee benefits budgets and shedding some of its properties. CEO Mark Zuckerberg had taken steps to slow spending before the layoffs, but ultimately decided to let employees go.

Why do you need to lay off employees?

The layoffs are due in part to the reversal of fortunes Meta has suffered over the past year. At one point in 2021, the company was valued at $1 trillion, but Meta’s value and stock price have been heavily influenced by several factors.

In July 2022, the company posted its first-ever revenue loss in advertising revenue, reporting a 4% loss in revenue for the third quarter of 2022, from $29 billion to $27.7 billion.

When we dig deeper into this number, we find that ad impressions, or the number of ads shown, increased by 17% year-over-year. However, advertisers are spending less on ads, with the average ad price down 18% year-on-year.

This decline can be attributed in part to the stricter privacy policies that Apple has enacted. The Facebook, Instagram and WhatsApp applications collect your personal data and create your user profile. They then use these profiles to sell to marketers to better target ideal customers.

For example, if Instagram sees you looking at lots of new cars and visiting a car payment calculator website, it might assume you might be interested in buying a new car.

This information is valuable to car manufacturers because they know they have a potential customer. In return, they advertise to you. They are willing to pay more for a customer in the car market than to pay for advertising to someone who is not interested in buying a new car.

With Apple’s new update, users must opt ​​in to track data, making it harder for Meta to sell highly targeted advertising. This type of ad isn’t as valuable, so advertisers pay less.

In addition, the economy is weakening and may enter recession in 2023. As a result, many companies are cutting costs, and advertising budgets are often among the first to be affected. Combine these factors and you have less ad spend, which hurts Meta’s revenue.

Advertising revenue drives the operation of all of Meta’s properties, and the company generated $114.9 billion from advertising in 2021 alone. Total revenue reported for the nine months of 2022 is $84.4 billion, almost identical to the first nine months of 2021.

With estimates of $30 billion to $32.5 billion for the fourth quarter, total revenue for the full year 2022 will be between $114 billion and $116 billion.

The revenue slowdown is only one part of the problem. Spending rose 19% year-on-year, with much of it spent on Mr. Zuckerberg’s metaverse project.

Meta’s Reality Labs division, also known as its virtual reality and augmented reality division, lost $9.4 billion in the first nine months of 2022, compared with a $6.8 billion loss for the same period in 2021.

In an earnings report, Meta said they expect Reality Labs’ operating losses to widen in 2023. This statement concerned many shareholders. The company continues to spend regardless as it builds the meta version, but offers no estimate of when the project will turn a profit.

Meta relies primarily on advertising revenue and has not found a secondary source of revenue. If sales are down, the company will have to make some tough decisions.

Also discouraging investors is that sales of the Quest VR headset have slowed. Reality Labs’ third-quarter revenue was down 49% due to lower sales of the Quest 2. This calls into question why Meta is releasing a new version of the headset, the Quest Pro, in 2023.

Meta is not alone in its losses. Almost every major technology company has experienced a loss in revenue and value since the Federal Reserve began raising the federal funds rate.

Nor is the company alone in laying off staff and implementing hiring freezes in response to financial pressures. What is different is the fact that Meta is not withdrawing funding from its metaverse project.

In contrast, other tech companies such as Amazon are backing away from projects that don’t show signs of profitability soon.

Meta forward

To date, Mr. Zuckerberg has expressed his unwavering support for the metaverse. He believes the virtual reality universe is the next “big thing” in connecting people in a way Facebook never could.

During the latest earnings call, Mr. Zuckerberg focused primarily on his vision of the meta version, insisting that it is the future of social media. He mentioned that the number of daily users of all their social media grew to 2.93 billion in the third quarter of 2022.

The future of Meta is uncertain, especially considering the fact that Mr. Zuckerberg has complete control over Meta. This means that no one can reverse his decision to spend money on his metaverse project, even if it shows no signs of profitability.

Many companies do the opposite and have a separate CEO and executive chairman. Amazon, for example, has Jeff Bezos as executive chairman and Andy Jassy as CEO. Separating roles allows companies to focus more effectively and ensure they remain profitable.

It is important to note that the concept of a virtual reality world was previously tried in a virtual universe known as Second Life, which ultimately failed to gain widespread acceptance and traction.

Another concern about metaverse is that Meta employees are not using it and some users may feel uncomfortable using a VR headset.

Investors interested in adding Meta to their portfolios may be hesitant. Fortunately, can help. Using artificial intelligence (AI), investment suites can help you find the right investments for your goals and risk tolerance.

Bottom Line

Currently, Facebook, Instagram and WhatsApp are still profitable. Their management is stable and risk averse. It is less likely to disrupt a successful business model, even at a loss of revenue.

The wild card in the equation is Mr. Zuckerberg’s spending on meta and how long he can justify that spending. He expects to lose even more money in 2023, but also expects to eventually turn a profit.

Unfortunately, there is no timeline for when this will become profitable for the company. It remains to be seen whether he is right and whether the money spent is worth it. Meanwhile, the stock is down 66% year-to-date. takes the guesswork out of investing.

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Also Read :  Tech Giants Facebook, Google, Apple Could End Up Collaborating on Creating Metaverse: Expert

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