Meta to Follow Twitter’s Lead This Week With Massive Sweeping Layoffs
One would be hard-pressed to find a tech company that isn’t struggling to grow revenues and control costs.
Big tech firms that rely on advertising revenue, mainly social media companies, such as Meta Platforms (NASDAQ: META), have been hit particularly hard due to companies slashing their advertising budgets. The answer to slowing revenues and growing costs is to lay off employees. This appears to be precisely what’s happening at some of the world’s most prominent tech companies.
The most prominent layoff story of recent memory is the slow-moving train wreck taking place at Twitter (NYSE: TWTR). After Elon Musk begrudgingly agreed to follow through with his original offer to buy Twitter, he’s set about making sweeping changes to the platform. No change will have a more significant effect than Musk’s purported plan to lay off about half of Twitter’s workforce.
While Twitter’s struggles are drawing a great deal of attention due to the public’s fascination with Elon Musk, the situation at Meta is quickly becoming just as dire. A combination of reduced advertising revenue and Mark Zuckerberg’s relentless pursuit of building out the Metaverse has resulted in the company burning billions of dollars.
While shuttering its disastrous Metaverse division would undoubtedly go a long way toward solving its cash burn, this is not likely to happen. Zuckerberg is in it for the long haul, billions in losses be damned. Instead, Meta will reduce headcount in their other divisions, most of which actually generate cash for the company.
Also Read: Meta Stock Craters to 6-Year Low Following Disastrous Q3 Earnings
The layoffs are expected to start in earnest this week, with employees being ordered to cancel all non-essential travel. While no exact number has been given, the number of employees that will be let go is expected to number in the tens of thousands, potentially saving the company billions in payroll expenses.
The mass layoffs come after a letter from activist investor Brad Gerstner urged Zuckerberg to lay off 20% of Meta employees and drastically reduce spending on the Metaverse. Zuckerberg appears to be going along with the layoff suggestion but not the cuts to the Metaverse.
Zuckerberg commented on the layoffs and reaffirmed his dedication to virtual reality, stating:
“In 2023, we’re going to focus our investments on a small number of high-priority growth areas. So that means some teams will grow meaningfully, but most other teams will stay flat or shrink over the next year.”
Whether these mass layoffs will help the company’s profitability is uncertain. Such a drastic change will likely lead to some revenue drop, while the saved payroll expenses will probably find their way into the money pit that is the Metaverse. Investors would be wise to steer clear until there is more clarity on the company’s profitability moving forward.
Shares of Meta Platforms are currently trading at $95.73 per share, down 1.02% on the day. YTD, META stock is down 71.72%.
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