Reuters, November 9 – As the Facebook parent dug down on its risky metaverse bet amid a collapsing advertising market and decades-high inflation, Meta Platforms Inc (META.O) announced on Wednesday that it would eliminate more than 11,000 jobs, or 13% of its staff.
The major layoffs, among the largest this year and the first in Meta’s 18-year history, come after thousands of jobs were eliminated at other digital firms, including Snap Inc., Microsoft Corp. (MSFT.O), Twitter Inc., and Twitter, owned by Elon Musk.
Like its competitors, Meta actively recruited during the epidemic to handle an increase in social media use by customers who were stranded at home. However, as a result of advertising and consumers cutting down on purchases due to skyrocketing prices and quickly rising borrowing rates, business has suffered this year.
CEO Mark Zuckerberg wrote in a note to staff, “Not only has online commerce returned to historical trends, but the financial slump, greater competition, and advertisements signal loss have led our revenue to be considerably lower than I’d expected.”
I acknowledge that I made a mistake and accept responsibility.
A red-eyed Zuckerberg spoke to colleagues on a brief call on Wednesday that Reuters was privy to, declining to take any questions. He adhered to a script that nearly mirrored the language used in the morning’s blog post and referred to the increasing e-commerce investments as a “major planning failure.”
He said that he would have another town hall on Friday and accept questions there.
After dropping more than 70% of its value this year alone, Meta, which was once worth more than $1 trillion, is now valued at $256 billion.
Shares of Meta increased by 4% on Wednesday as investors applauded the company’s caution after it made costly investments in the metaverse that, according to Zuckerberg, will take ten years to pay off.
The market is exhaling a sigh of relief that Meta’s management, or Zuckerberg in particular, appears to be heeding some advice, according to Hargreaves Lansdown analyst Sophie Lund-Yates: “You need to take some of the steam out of the expanding expenditure bill.”
In contrast to the earlier estimate of $96 to $101 billion, the corporation now anticipates 2023 expenses of $94 to $100 billion. The forecasted range for capital expenditures in 2023 was similarly reduced.
The company will also reduce office space, cut back on discretionary expenditure, and extend a hiring freeze into the first quarter in addition to the job losses, which will disproportionately affect the business and recruiting teams across Meta.
However, a larger portion of the remaining funds will go to the Reality Labs division in charge of its investments in the metaverse. From January through 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; lately, one investor called the investments “super-sized and terrifying.” Additionally, some have questioned how long Meta can continue to fund the endeavour in a struggling economy.
“They’ll need to keep rightsizing, unfortunately. It will be challenging for them in the atmosphere next year, “Paul McCarthy of Kisco Capital, which once owned Meta shares, made the statement.
McCarthy said that he was dubious about the company’s bets on the metaverse and that the ad market would still be negatively impacted by rising interest rates, a bleak macro environment, and other factors.
Meta will pay 16 weeks of basic pay and two additional weeks for each year of service as part of the severance package, in addition to any unused paid time off.
According to Meta, which had 87,314 employees as of the end of September, impacted employees would also receive shares that were scheduled 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.