InvestorQ : Why has Meta Platforms or face laid off employees so aggressively?
Archita Jajjoo made post

Why has Meta Platforms or face laid off employees so aggressively?

Niti Shenoi answered.
2 weeks ago

This is likely to send a tinge of fear down the IT sector because if Facebook is in trouble then lesser mortals are also likely to be deep in trouble. Meta Platform or Facebook has announced plans to lay off nearly 13% of its workforce of 87,314 people. That means nearly 11,000 persons will be allowed to go. In a message to the employees being laid off, Mark Zuckerberg has taken the responsibility for the decision. Ironically, Meta Platform has typically been on a massive and aggressive hiring spree in most of the world markets. The communication from Mark Zuckerberg has already gone out to existing and ex-employees.

The reductions have been ruthless and across departments. To that extent, you can almost call it business agnostic. People were laid off across departments and regions. However, the non-revenue generating departments were the worst hit. Departments like recruiting and business teams is where the lay-offs have been the deepest. The lay-offs have also been partial to the future plans of Meta. For instance, the lay-offs largely spared employees like engineers working on projects related to metaverse and technical experts working on the immersive online world. These are some of the pet projects of Mark Zuckerberg.

To put things in perspective, the cuts at Meta are thrice the size of the employee cuts at Twitter. The decision to lay off 13% of its employees may have come in for a lot of criticism but there was not much of a choice anyways. In the last few years, Meta spent lavishly and aggressively just to accumulate users. Even its acquisitions were expensive and indulgent. Facebook had paid top dollars for acquiring big brands like Instagram and WhatsApp. Despite controversies over its data privacy practices and its toxic content, the turnstiles of Facebook and Meta had been ringing. That is changing now and changing rapidly.

Meta touched peak valuations of close to $1 trillion but has struggled since then, losing a big chunk of its market value. Meta has now sunk billions of dollars into its immersive world project (Metaverse). However, some of its traditional cash cows like digital advertising have taken a deep hit amidst tough competition. Facebook is also losing its mojo with the younger audience increasingly gravitating towards Tik Tok for their social media presence. For the first time, Meta is facing competition in the social media space and that is tough.

In a sense, the business growth at Facebook and at Metaverse came too quickly. In fact, the problems started unravelling the moment the online revenues could not keep pace with the rise in costs. Already, the recession fears have put a cog on tech spending and that is hitting the digital revenues quite hard. The only choice for Metaverse was cutting costs. However, they are not giving up on their Metaverse and Immersive Experience projects. Hence, most cuts will happen in other segments, not related to these specific projects of Metaverse.

The problems at Metaverse if manifestation of the larger problems at Silicon Valley in the last few years. There was a lot of exuberance that the post COVID bounce would almost last to eternity, which was optimistic in the first place. To be fair, Meta is not just cutting down on employees but also on operating costs and real estate costs. It will now focus purely on artificial intelligence, advertising and the metaverse. However, experts at Harvard University opine that the problem was bad estimation and wrong timing. By hiring so rapidly, Meta and others have just about set their companies for such large scale retrenchments.