Mark Zuckerberg’s “year of efficiency” is proceeding apace, apparently.
Meta is gearing up for more layoffs, the Washington Post reported on Wednesday, citing a person familiar with the plans, who indicated the company is “deputizing human resources, lawyers, financial experts and top executives” to draw up a blueprint for “deflat[ing] the company’s hierarchy.”
The shuffle, which WaPo‘s source said may affect “thousands” of employees, will “push some leaders into lower-level roles without direct reports, flattening the layers of management between Zuckerberg and the company’s interns.”
On Meta’s Q4 analyst call, Zuckerberg and Susan Li said the 11,000 jobs the company eliminated in November were “just the beginning” of the company’s “efficiency efforts.” At the time, I said that “doesn’t have to mean more job cuts,” but the writing was on the wall.
Between over-hiring based on what Zuckerberg later admitted was erroneous extrapolation about the durability of pandemic dynamics, and the company’s aggressive push to develop metaverse-related projects, investor worries mounted, crescendoing in a selloff that at one point erased more than $850 billion in market cap.
Since then, the shares have rebounded smartly, although they remain more than 50% below their September 2021 highs.
Andy Stone, Meta’s communications chief, wasn’t amused with WaPo‘s headline choice. “The [Washington Post] got this one wrong,” he said, referring to the paper’s contention that Zuckerberg “predicted no more layoffs.” “With all due respect, how do you run a story with a headline that is contradicted by the reporting in the very same story — as well as previous reporting?”
As noted above, Stone is correct to say that management clearly indicated more cost-cutting efforts were in the works, and you didn’t have to be a genius hacker to know that likely meant more layoffs.
Earlier this month, after delivering results that pleased markets and Wall Street, Zuckerberg said the company was “working on flattening our org structure and removing some layers of middle management.” As I put it, that was probably “bad news for those middle managers” even as it was “good news for shareholders to the extent it saves money.”
Zuckerberg never promised not to cut more jobs. In fact, you’d have been pretty naive not to read between those particular lines, so I suppose I’m inclined to agree with Stone: WaPo‘s headline was somewhat misleading.
But, “with all due respect” to Andy, his gripe with WaPo is secondary to the larger story — namely that the company is still trying to right-size. To reiterate: From the perspective of shareholders, this is mostly good news, but it does speak to the idea that Meta isn’t there quite yet when it comes to course correcting.
Revenue growth at Meta was negative on a YoY basis for a third consecutive quarter in Q4, and while the company’s pretensions to frugality are welcome, some might fairly suggest they’re difficult to square with the red ink in Reality Labs, which came to some $14 billion in 2022 including a Q4 operating loss of $4.3 billion, the largest yet.
Meta this month cut its expense guidance for the full-year 2023 to between $89 billion and $95 billion, down from the $94 billion to $100 billion range the company projected previously, citing “slower anticipated growth in payroll expenses.”
To be sure, Meta isn’t alone among tech firms cutting jobs. The list is long, and the cuts are large, even as they’ve yet to manifest in employment aggregates for the US economy.
Nasdaq 100 firms are currently experiencing an intense bout of negative operating leverage. Although company analysts expect the situation to improve, some top-down equity strategists on Wall Street worry that might be optimistic.
“The Nasdaq 100 is currently seeing its worst YoY EPS growth since the GFC despite the fact that top-line growth remains positive,” Morgan Stanley’s Mike Wilson wrote this week. “The focus on expense management, layoffs and operating efficiency within broader tech this quarter makes perfect sense given the margin pressure that has materialized.”
Meta on Sunday rolled out plans to charge for account verification, and it’s certainly worth mentioning that Zuckerberg’s Quest headsets are about to run into their biggest competition yet, as Apple readies a rollout of its own device. Admittedly, I haven’t been impressed with what I’ve heard about Tim Cook’s headset, but at the same time, being in competition with Apple on the hardware front can be challenging, to put it mildly.
As discussed here two weeks ago, US companies announcing layoffs have two things in common besides being associated, loosely or otherwise, with technology. First, most of them hired at a torrid pace over the pandemic period. Second, public companies cutting jobs witnessed a -40% drop in their share price from the peak, on average, compared to just -14% for the S&P 500.
You made a great call on Meta , H, buying around 100 bucks if I’m not mistaken.
Yeah, I don’t want to call it pure luck, but I’d be disingenuous not to concede that luck played a small role. I bought Meta literally at the lows. Almost to the penny. I was pretty sure I’d make money in fairly short order, but I didn’t know I was buying at the actual lows, nor did I expect it to double in four months.
I’ve had experiences like this, and have watched colleagues have these experiences- we were more right than we realized? Today, I would say something different- we were right but we had the wrong reason….Trading is very challenging- if you’re really good, you’re right maybe 55% of the time. So look at that margin- in what percentage were you right but for the wrong reason. That is my humanity adjusted ratio. In a way, you could say the Sharpe ratio and the Sortino ratio,(which I prefer,) are crude attempts to uncover that. Always be humble relative to markets…..