Facebook parent Meta announced Thursday a first-ever plan since the company’s 2004 inception to reduce staff, reorganize teams and cut costs, pushing share prices down 3.7 percent on Thursday.
The company’s shares have fallen 60 percent so far in 2022, causing some observers to question if the downward movement is part of a “death spiral” from which Meta can’t recover.
Meta CEO Mark Zuckerberg identified the end of an era of rapid growth for the social media giant, saying the company will likely be smaller in 2023. He made the announcement during a weekly Q&A session with employees, according to a person in attendance, Bloomberg reported.
Facebook will reduce budgets for most teams, even those that are growing, and individual teams will handle headcount changes, Zuckerberg said. That could mean moving people to other teams, “manage out people who aren’t succeeding,” or not filling jobs after employees leave.
“Restructuring = massive layoffs sugar coated,” tweeted @unusual_whales.
“Aka firing due to a recession,” @BruinJustine replied.
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Facebook continues to see a slowdown in advertising revenue growth in 2022 with growing competition for users’ attention. Its ad business, built on precise consumer targeting, has lost some of its edge due to new privacy restrictions from Apple Inc. on tracking iPhone users, according to Bloomberg. Instagram is losing younger users to TikTok and Zuckerberg is betting on the metaverse, an immersive virtual reality future where he predicts people will eventually communicate. He has said this effort will lose money for many years.
This reverses a cycle of how Facebook built its business on network effects — users brought friends and family members, who told their friends, who invited their friends. Suddenly everyone was gathering in one place. Advertisers followed, and Facebook used its massive profits to recruit the best and brightest engineers to keep the cycle going.
“I had hoped the economy would have more clearly stabilized by now,” Zuckerberg said. “But from what we’re seeing it doesn’t yet seem like it has, so we want to plan somewhat conservatively.”
Meta is trading at its lowest since early 2019, and its stock has been one of the worst performers on the S&P 500 in 2022.
“I’m not sure there’s a core business that works anymore at Facebook,” said Laura Martin, an analyst at Needham, in a CNBC interview on Friday.
Meta announced earlier this year that it planned to slow hiring. Other ad-reliant tech companies have also started restructuring or cost cutting including Twitter, which imposed a hiring freeze in May; Alphabet’s Google, which said that it will slow hiring, and Snap, which cut 20 percent of its workforce in August.
Thursday’s restructuring announcement was needed because “we want to make sure we’re not adding people to teams where we don’t expect to have roles next year,” Zuckerberg said in the meeting. “For the first 18 years of the company, we basically grew quickly basically every year, and then more recently our revenue has been flat to slightly down for the first time.”