Meta expected to join tech industry’s growing list of layoffs

The Washington Post / Jacob Bogage, Naomi Nix, Julian Mark

13:25 JST, November 8, 2022

In recent weeks, several big-name technology companies have announced staff cuts or hiring freezes. Now, following months of warnings from executives, Facebook’s parent is poised to join them with large-scale layoffs, according to a person familiar with the matter who spoke on the condition of anonymity to discuss the company’s strategy.

After years of soaring profits and seemingly endless success, Silicon Valley giants have been forced to manage their resources in an uncertain economic environment. Some digital advertisers are pulling back on spending as rising inflation has created market instability. While many internet platforms experienced a boom during the pandemic when people stayed home to avoid the spread of the coronavirus, vaccines and fewer government-imposed shutdowns have given marketers and users offline alternatives to social media.

Meta, in particular, is facing more competition for advertising dollars and users from newer social media rivals such as TikTok and Snapchat. And the targeted advertising methods that turned Meta into an economic behemoth took a hit last year when Apple introduced privacy restrictions that forced appmakers to explicitly ask users if they could track their activity across the internet – a request many rebuffed.

More than a month ago, Meta had said it would stop making new offers to job candidates, sourcing candidates and approving internal transfers while the company reevaluated how best to prioritize its staffing resources, according to a memo posted to the company’s internal message board and viewed by The Washington Post.

But the layoffs, which could begin as soon as Wednesday, according to the Wall Street Journal, would be the first wide-scale job cuts in the company’s 18-year history.

Meta representatives did not immediately respond to a request for comment.

The move also follows layoffs at Twitter, which slashed roughly half of its staff last week after Elon Musk, the billionaire chief executive of Tesla, acquired the platform in October.

The job cuts at Twitter reflect Musk’s specific plans for the company, but other technology companies have started slashing costs to prepare for a possible economic downturn. Ride-hailing service Lyft announced plans to cut 13 percent of its staff. Online payment company Stripe will cut 14 percent of its workforce. Chime, a private fintech firm, will cut 12 percent. Real estate marketplace Zillow and crowdfunding platform GoFundMe announced layoffs in October of 5 percent and 12 percent, respectively.

Apple and Amazon, whose founder Jeff Bezos owns The Washington Post, have each reportedly ordered hiring freezes.

Meta CEO Mark Zuckerberg said during his company’s quarterly earnings call in October that Meta expected to conclude 2023 “either roughly the same size, or even a slightly smaller organization than we are today.”

“So that means some teams will grow meaningfully, but most other teams will stay flat or shrink over the next year,” he said.

The industry’s job cuts come as tech firms warn of recession risk and race to cut costs after pandemic-era hiring binges.

As the Federal Reserve raises interest rates – on Wednesday, it approved a fourth straight hike of 0.75 basis points – the tech sector is being hit especially hard, said Josh White, an assistant professor of finance at Vanderbilt University.

Technology firms’ largest asset is their workforce, he said, in contrast with businesses in other industries that have capital-intensive equipment or high-priced materials. And tech companies’ debt financing is often reliant on consistent interest rates.

When rates increase, especially this sharply, White said, it gets too expensive for tech companies to keep borrowing money to feed their voracious hiring. And without much else to cut to maintain profit margins, they’re forced to shed employees.

“This is a manifestation of the slowing in tech,” White said. And tech is always hit harder with rising interest rates because a lot of their profit comes down the road.

“For them to make money, sometimes it takes years. I think we’re seeing an unwinding now that’s typical of cost-cutting measures when we see a slowing economy. Their value comes from their intellectual property which is patents, trade secrets or people. You can’t cut costs on patents. Trade secrets are what they are. That just leaves people. That’s where you have to cut costs.”

For Meta in particular, Zuckerberg has used the past 13 months to pivot the company that he co-founded in his Harvard University dorm room to become a leader in the metaverse.

In February, its flagship platform Facebook reported losing users for the first time, and the months since have seen it shed market share to upstarts TikTok and BeReal.

Zuckerberg has signaled that the company has outgrown its Facebook-first mentality, particularly in the wake of damaging scandals over its privacy protections, algorithm infrastructure and user safety.

“Facebook is one of the most-used products in the world. But increasingly, it doesn’t encompass everything that we do,” he said in October 2021 during an event announcing the firm’s name change. “Right now, our brand is so tightly linked to one product that it can’t possibly represent everything we are doing.”

But the layoffs could also be an indication that the transition is moving more slowly than anticipated, White said, as users eschew movement to the metaverse and Meta’s new metaverse products fall short of consumers’ expectations.

“Companies often try to reinvent themselves or push themselves back toward the high-growth stage, and that’s what Zuckerberg was trying to do with Facebook and Instagram,” White said. “That pivot toward the metaverse was his attempt to pivot back to a high-growth stage. But sometimes those pivots don’t always pay off.”

Last month, Meta reported its second-ever revenue decline and said it plans to lose more money next year in its metaverse push. The company nonetheless struck an optimistic tone as it reported that user growth numbers rose on Facebook and its other apps compared with the same quarter last year.

During an October investor call, Zuckerberg added that the company can overcome larger macroeconomic threats and the fierce competition for advertising dollars with new product investments, including mimicking the same artificial-intelligence-fueled strategy that has made TikTok successful.