Metaplatforms (META) does not go well. The social media giant, parent of Facebook, Instagram and WhatsApp, has been sending alarming signals for several months.
It was ejected from the top 10 most valuable companies in the world, and this year its market capitalization fell by nearly $545 billion.
In the third quarter, which is about to end, stocks fell about 15%, which alone translated into a $57.5 billion decline in market value. from July to September.
Chief Executive Mark Zuckerberg, who warned in late June that we were headed for “one of the worst downturns we’ve seen in recent history,” just made announcements that suggest Meta’s short-term future faces severe cloud cover and impending storm.
Facebook makes the first workforce reduction
On September 29, during Meta’s traditional weekly Q&A session, the billionaire informed employees that the company was entering a new era marked by lackluster growth.
Meta will reduce its workforce for the first time since its inception in 2004, Zuckerberg told employees. This involves several actions: The firm will freeze hiring, restructure certain teams and reduce budgets even for teams in buoyant sectors.
Meta, for example, shouldn’t replace quits and will let go of “unsuccessful” people, Zuckerberg told employees.
“I had hoped the economy would have stabilized more clearly now,” Zuckerberg said, according to Bloomberg. “But from what we’re seeing, it doesn’t appear to be the case yet, so we want to plan somewhat conservatively.”
The boss added that Meta will be “a bit smaller” by the end of 2023.
“For the first 18 years of the business, we basically grew rapidly every year, and then more recently our revenue was flat or slightly down for the first time,” Zuckerberg added.
Meta declined to comment. A spokesperson referenced Zuckerberg’s statements during the second-quarter earnings call in July.
“Our plan is to steadily reduce headcount growth over the next year. Many teams will be shrinking so we can shift energy to other areas, and I wanted to give our leaders the ability to decide within their teams where to double down, where to fill attrition and where to restructure teams while minimizing the impact on long-term initiatives,” Zuckerberg told analysts at the time.
Facebook employed 83,553 people as of June 30, up 32% from 63,404 as of June 30, 2021, according to a regulatory filing.
“Not much light until 2023”
Meta appears to have lost its compass, say some analysts, who see the company facing serious hurdles.
“So there are several headwinds they’re facing in the meantime,” said Brent Thill of Jefferies. “Obviously a hiring freeze suggests things are getting worse, not better. So growth is going to turn negative this quarter. Last quarter was negative, it could get even more extreme as we go into this economic storm.”
“So there really isn’t a lot of light until 2023,” Thill added.
The analyst listed the various challenges that Meta is facing.
“So you have a slowdown in advertising, which is the first thing companies cut in economic headwinds. I think the second thing is competition. Obviously there’s been a rush on TikTok.”
He continued: “Very few 18 to 25 year olds are still on Facebook, they rushed to TikTok. So I think you have a competition problem as well. In the meantime, you have stolen income, you have big investments in the metaverse, you have shrinking operating margins, and you have the combined effect of not being interested in buying technology right now.”
Recession and Tiktok rivalry threaten ad revenue
The economic downturn and a likely recession threaten the revenue Meta generates from its Facebook advertising business. But the Instagram and WhatsApp owner is also losing market share to rivals.
TikTok, the short-form video platform, has become one of the favorite avenues for advertisers targeting Gen Z and Millennials in recent months.
When it comes to the Metaverse, considered by Zuckerberg to be the next big thing in enterprise, the jury is still out on whether it will truly become the next big thing. Nearly 16 billion dollars have been invested in this, but for the moment it remains a money pit.
Reality Labs, the division that hosts Metaverse’s plans, posted an operating loss of $2.81 billion in the second quarter. In the first half, losses amounted to $5.8 billion. In 2021, Reality Labs posted a loss of $10.2 billion.
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