While 2021 was a record breaking year for tech giants, their valuations have fallen significantly this year. As a rule, in times of crisis, even these companies have to tighten their belts.
However, some are better protected than others. Unfortunately, for Mark Zuckerberg, his company Meta is one of the big losers. And today, it is forced to lay off massively.
In all, more than 11,000 employees will leave Meta, according to the announcement published by the company. This represents 13% of the group’s workforce. But how did we get here?
Mark Zuckerberg’s mea culpa
In a letter to Meta employees, and shared on the company’s website, Mark Zuckerberg takes responsibility for these decisions and apologizes.
In 2020, when online business skyrocketed, e-commerce boomed and Meta revenue grew rapidly. Like many people, Zuckerberg believed this growth would continue even after the pandemic. Also, Meta has increased its investments.
But he was wrong. And with the return to normal are added other problems. Indeed, inflation has arrived, and as far as Meta is concerned, it must face greater competition, especially that of TikTok. On the other hand, the group’s advertising revenues are affected by the changes that Apple has made to iOS, which make it more difficult to target advertisements.
Although it is not mentioned in the letter, Mark Zuckerberg is also accused of spending lavishly to develop the metaverse, while this activity is currently generating immense losses. In 2022 alone, these metaverse projects would have cost $9.4 billion.
Meta’s latest quarterly results were far from encouraging. Indeed, revenues fell by 4%, while expenses exploded by 19%. Operating profit fell by 46%!
“In this new environment, we need to become more capital efficient. We have shifted more of our resources to fewer high-priority growth areas, like our discovery engine with AI, our advertising and commerce platforms, and our long-term vision for the metaverse.”writes Zuckerberg.
Meta forced to save money
The CEO of the group assures that the dismissals were considered the last resort. And before deciding to lay off 11,000 employees, Meta has already studied other ways to reduce its expenses. The group says it wants to reduce discretionary spending (non-essential spending). And Mark Zuckerberg even mentions a “cultural change”, on the way of working.
An example cited by the CEO of Meta concerns offices. For example, employees who spend most of their time outdoors will switch to office sharing. And Mark Zuckerberg indicates that other similar changes, intended to reduce expenses, will be announced in the coming months.
On the other hand, with a few exceptions, the recruitment freeze will continue until the first quarter of 2023.
An undervalued company?
This year, Meta stock plunged on the stock exchange, due to all the factors mentioned above, as well as the company’s spending to develop its AR/VR headsets as well as the Metaverse. In his letter, Mark Zuckerberg says his business is “deeply underrated.”
“Billions of people use our services to connect, and our communities keep growing. Our core business is among the most profitable ever built with huge potential ahead of us. And we are leading the development of technology to define the future of social connection and the next computing platform”, he wrote. It remains to be seen whether the measures announced will be enough to reassure Wall Street.