Meta to cut another 10,000 jobs
Meta, the owner of social media platforms Facebook and Instagram, has announced it plans to cut another 10,000 jobs over the coming weeks and months. It also said that it will close 5,000 vacancies that are currently being advertised as it looks to slow down the pace of new hires.
That is the latest measure to be taken after Meta CEO Mark Zuckerberg described 2023 as the ‘Year of Efficiency’ when Meta released its annual results earlier this year, vowing to keep cracking down on costs in response to a slowdown in growth thanks to a subdued advertising market.
Those responsible for recruiting new staff will be the first to be impacted and will discover the impact in the coming days , with staff in tech departments to find out their fate in ‘late April’, followed by those in business functions in ‘late May’.
That suggests the restructuring will take many months to complete, with Meta warning that ‘a small number of cases’ may take until the end of 2023 to resolve.
Meta: still plenty of fat left to cut
This is the second round of job cuts that Meta has initiated, having announced last November that it was cutting 11,000 jobs.
It is still working through these cuts even after announcing the additional 10,000 layoffs today.
Meta was among those that went on an over-zealous hiring spree when times were good during the recovery from the pandemic and its workforce. We saw Meta’s workforce more than double in size between the start of the pandemic and the end of 2022, as demonstrated by the chart below. However, we can see that Meta’s workforce will still be some 46% larger before the pandemic hit even after the 21,000 jobs are removed this year.
(Source: Company reports, announcements)
Still, Meta has signaled that its workforce could start to grow again after it said it would ‘lift hiring and transfer freezes’ once these job cuts are completed. Investors should not expect a ramp-up in hiring though, with Meta vowing to be a ‘leaner, more technical company’ and confirming that it will make new hires at a much reduced pace than we have seen in recent years.
Meta has said it plans to flatten its hierarchy and cut out unnecessary layers of management to speed up processes and improve the flow of work throughout the business. It is also continuing to pull the rug from under low priority projects and reallocating useful resources to other parts of the business.
Meta: tougher conditions could last ‘many years’
Meta has already warned that conditions would remain tough and keep earnings under pressure throughout 2023, but said today that it thinks this ‘new economic reality will continue for many years’.
‘For most of our history, we saw rapid revenue growth year after year and had the resources to invest in many new products. But last year was a humbling wake-up call. The world economy changed, competitive pressures grew, and our growth slowed considerably,’ said Zuckerberg.
With growth to struggle for the foreseeable future, the best thing Meta can do is demonstrate that it is getting a grip on costs and protecting profitability in these tougher times. This helps install confidence that it can weather the storm and bounce back in better condition when the recovery eventually comes.
‘Given this outlook, we’ll need to operate more efficiently than our previous headcount reduction to ensure success,’ he added.
Meta refuses to reduce metaverse investments
Meta has found it difficult to convince the markets that its heavy investments in the metaverse will pay off. Its Reality Labs unit that homes its metaverse activities burned through a staggering $13 billion in 2022 and billions more will be lost in 2023. Some analysts have called on Meta to scale-back or even abandon its costly metaverse ambitions in order to focus on its core advertising business that is going through one of the toughest times on record.
(Source: Company reports)
Cutting investment here would be the easiest way to protect the bottom-line without impacting the business that drives Meta today – although that would come with the risk of losing its leadership in what it believes is its new long-term opportunity.
But Meta remains steadfast that its vision is worth pursuing, even if the outlook is challenging in the more immediate future.
‘In the face of this new reality, most companies will scale back their long term vision and investments. But we have the opportunity to be bolder and make decisions that other companies can’t. So we put together a financial plan that enables us to invest heavily in the future while also delivering sustainable results as long as we run every team more efficiently. The changes we’re making will enable us to meet this financial plan,’ said Zuckerberg.
Notably, Meta said its largest investments right now are not being made in the metaverse, but artificial intelligence, which it said is being put to use ‘into every one of our products’.
‘We have the infrastructure to do this at unprecedented scale and I think the experiences it enables will be amazing. Our leading work building the metaverse and shaping the next generation of computing platforms also remains central to defining the future of social connection. And our apps are growing and continuing to connect almost half of the world’s population in new ways. This work is incredibly important and the stakes are high. The financial plan we’ve set out puts us in position to deliver it,’ Meta said.
Where next for Meta stock?
Meta shares have popped over 5% this morning on the news it will make another round of job cuts.
The immediate upside goal is to break above the closing high of $191.62 we saw in February, with the stock having already tested this level in early trade today. From there, it can look to move back above $202 before eyeing a larger jump toward $223, representing the high we saw last May and the ceiling we saw in early 2020 before the pandemic derailed financial markets.
Notably, the 58 brokers that cover the stock think there is limited upside potential left following the rally in 2023, with the average target price currently sat at $209.
Plus, the RSI is also testing overbought territory today to suggest that gaining more ground could be more difficult. A fall back toward the February-low of $168 remains a possibility. Below here, the $155 floor we saw in the third quarter of 2022 should provide some support.