Meta to fire 11,000 people: why is Facebook parent cutting jobs, and what next?

What has Meta done?

Along with the pink slips, Meta has implemented other cost-cutting measures as it grapples with soaring costs and dipping ad revenues. The company plans to cut discretionary spending and extend its hiring freeze through the first quarter. But it has not specified the impacted regions or the expected cost savings from the moves.

Before the firings came, Meta had been giving signals of cost cuts, by shrinking its real estate footprint and withdrawing some of the perks to its employees, such as free laundry and dry cleaning services and dinners they were allowed to take home to families.

Why has Meta been forced to cut costs?

Broadly for two reasons — falling revenue and because it is pouring money into the Metaverse project.

During the Covid-19 pandemic, tech firms had seen a boom as people stayed indoors and spent more time online and on their devices. This boom has not sustained post pandemic. Also, platforms like TikTok are posing a stiff competition to Facebook.

As Zuckerberg said in his letter, “At the start of Covid, the world rapidly moved online and the surge of e-commerce led to outsized revenue growth. Many people predicted this would be a permanent acceleration… I did too, so I made the decision to significantly increase our investments. Unfortunately, this did not play out the way I expected. Not only has online commerce returned to prior trends, but the macroeconomic downturn, increased competition, and ads signal loss have caused our revenue to be much lower than I’d expected. I got this wrong, and I take responsibility for that.”

Also, Meta’s investors have been unhappy with the funds going to metaverse. As Meta allocated over $10 billion a year into the metaverse, investors sent its shares tumbling more than 71 per cent since the beginning of the year, AP reported.

The New York Times reported that, “In its earnings report last month, Meta disclosed that Reality Labs, the part of the company working on the metaverse, had $3.67 billion in operating losses. Reality Labs also experienced its lowest revenue since the final quarter of 2020. The company expects the operating losses for Reality Labs to increase next year.”

All of this was worsened by the economic slowdown in the US. This summer, Meta posted its first quarterly revenue decline in history, followed by another, bigger decline in the fall.

What does this signal about the economy?

The once seemingly unstoppable Meta being forced to go for mass layoffs for the first time ever is a marquee marker of troubles in the economy. Ad revenue has been plummeting for digital platforms across the globe as the first signs of a global recessions start showing.

Meta is worse off after Apple introduced App Tracking Transparency in the iOS, allowing users to refuse permission to developers to create a unique ID that tracks them and serves ads based on their behaviour. This will make ads on Meta and other platforms less efficient. Meta claims this will cost it at least $10 billion this year.

What now?

As reported by Reuters, Meta’s shares rose 4.5 per cent to $100.80 before the bell on Wednesday.

“The market is breathing a sigh of relief that Meta’s management or Zuckerberg specifically seems to be heeding some advice, which is you need to take some of the steam out of the growing expenditure bill,” Hargreaves Lansdown analyst Sophie Lund-Yates was quoted as saying by Reuters.

She added, “It does not quite tally that you’re going to try and increase efficiency at the same time as chasing something as ambitious and as tenuous as the metaverse”.

Zuckerberg, however, has made it clear he will continue to focus on metaverse. “We’ve shifted more of our resources onto a smaller number of high priority growth areas — like our AI discovery engine, our ads and business platforms, and our long-term vision for the metaverse,” his letter said.

Indian workers

Zuckerberg’s letter talks about what Meta plans to do for fired employees on visa and those overseas.

“I know this is especially difficult if you’re here on a visa. There’s a notice period before termination and some visa grace periods, which means everyone will have time to make plans and work through their immigration status. We have dedicated immigration specialists to help guide you based on what you and your family need. Outside the US, support will be similar, and we’ll follow up soon with separate processes that take into account local employment laws,” the letter says.