Meta Rumored To Make Further Layoffs, Prompting Surprising Market Reaction

Key takeaways

• Meta announced $32bn in revenue for Q4, beating analysts’ expectations
• The earnings report this week was laser-focused on solving problems, marking a shift away from CEO Mark Zuckerberg talking about the Metaverse
• Heavy hints towards further streamlining Meta’s workforce, amongst other cost-cutting plans, caused its share price to jump 20% in a day

Meta has reported $32bn revenue recorded for Q4, beating all estimations and putting other Big Tech companies on notice.

CEO Mark Zuckerberg’s talk of further efficiencies and cost-cutting measures, with a hint of future layoffs, was a notable departure from his previous double-down on the Metaverse, a fairly theoretical and money sink for the company yet to pay off.

Wall Street responded in turn with a massive 20% jump in Meta’s share price, one of the biggest gains in Meta’s history. This is in sharp contrast to other tech companies with more downbeat outlooks, like Snap which warned ad revenue could drop by 10% in the first quarter.

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What are Meta’s latest earnings results?

The conglomerate, which also owns Instagram and Whatsapp, has wound in its cost outlook by $5bn for 2023. Its $32.17bn revenue beat expectations of $31.55bn, which was enough to keep the market happy, despite the figure being 4% less year on year.

The Big Tech giant recorded a 55% drop in profits in Q4 thanks to its $4.2bn restructuring efforts. Meta Platforms’ net income profit measure plunged to $4.65bn, down from $10bn in 2021 at the same time.

Normally this would cause anxiety from the market, but Meta had a few aces up its sleeve. Daily users and monthly users were both up for Facebook, which breached two billion daily active users for the first time.

Meta’s overall headcount actually increased despite the mass job culls by 20% year on year. Its headcount currency stands at over 86,000, though it’s worth noting that figure still includes the 11,000 we know are gone.

Overall it was a mixed bag of results, which Zuckerberg recognised after branding 2022 a difficult year on the earnings call. What’s crucial here is that Meta was up on all the right things: quarterly revenue, ad revenue and daily users.

Are there signs of further layoffs?

Zuckerberg said in the earnings statement that “Our management theme for 2023 is the ‘Year of Efficiency’ and we’re focused on becoming a stronger and more nimble organization.”

Ominously, the earnings report also mentioned that Meta “may incur additional restructuring charges as we progress further in our efficiency efforts”.

He addressed the difficult decision to downsize the workforce further on the earnings call – and didn’t mince his words. “I said clearly that this was the beginning of our focus on efficiency and not the end,” Zuckerberg said, citing middle management as the next target.

Our verdict? If we were Meta employees right now, we’d be brushing up on our CVs. It doesn’t sound as if Zuck is anywhere near done cutting jobs from Meta.

What happened in the last round of layoffs?

In November last year, Meta announced it was slimming its global workforce by 13%, or 11,000 workers – the largest layoff round it’s ever done. At the time, Zuckerberg said the job cuts were “a last resort”.

“We made our plan for [2022] in terms of how we thought the business was going to go, and obviously it hasn’t gone the way that we wanted to,” Zuckerberg admitted on a company call.

The role losses largely affected Whatsapp, Instagram and Facebook, while Metaverse positions remained largely safe from the axe. At the time, Meta also announced a hiring freeze for Q1 of 2023.

A tweet from a journalist revealed Meta had $975m down on the balance sheet as ‘Severance and other Personnel’, costing the company an average of over $88,000 per fired employee. The layoffs have been a costly business for the company.

What other cost-cutting measures is Meta taking?

The earnings call had several insights into the future of Meta for its remaining employees. According to the company, it’s undertaken a rigorous restructuring program, including consolidating the existing office space that it predicts will cost $1bn to arrange.

Meta also plans to change up its roadmap for data centers which raised some eyebrows. It plans on canceling many of its existing projects, with a view towards building centers with less capacity that can scale up as needed.

Meta’s CFO
CFO
Susan Li said of the move, “flexibility means that with this new data center architecture we can also optimize our approach to building data centers more efficiently”.

Finally, Meta’s use of AI is allegedly going to increase. As part of its plan to streamline the middle manager roles in the company, AI tools will be implemented to help engineers.

Zuckerberg cited the “progress we’re making on our AI discovery engine” as one of the key drivers for daily activity, so it’s unsurprising to see artificial intelligence rolled out for efficiencies internally as well.

What was the market reaction to the earnings call?

The combined effects of streamlining, restructuring and future efficiencies promised for 2023 were music to the stock market’s ears. Meta’s shares jumped 20% in extended trading hours, one of the biggest jumps the stock has made in a decade.

This is a big turnaround for Meta and Zuckerberg, whose dogged pursuit of the Metaverse had left investors seriously concerned about the company’s direction of travel. Zuck is focusing his messaging on the problems in front of investors now rather than discussing a hypothetical future – and it’s paying off.

It also marked the end of a string of lackluster results causing Meta share prices to decline. 2022 was the worst year on record for the stock after it faced underwhelming advertising revenues and a wider panic about the economy, falling 60% in value.

The jump is a clear sign that investors are looking for safety right now – so we may see other Big Tech companies following suit.

So, Zuckerberg has openly admitted he wants to cut more job roles in Meta. What we’re waiting on now is how many more roles that will be, and when.

The bottom line

So it’s a big swift jump for one of tech’s biggest players. Over time, we could see more of this sort of price action in the tech sector, though maybe not as quickly. There’s too much money continuing to be made in the sector for it to be in a downturn for too long, and there are also likely to be new companies arriving on the scene to take it to the big dogs at the top.

Staying on top of all this can be challenging for investors, particularly given how fast the industry moves.

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