Meta Platforms Inc., the parent of Facebook, Instagram and WhatsApp Messenger, announced the first major job cuts in the company's 18-year history on Wednesday morning, firing 11,000 employees as CEO Mark Zuckerberg blamed his own overly optimistic outlook for growth.
The cuts, roughly 13% of the workforce, will be the largest this year by sheer numbers in the tech sector, which has had several rounds of mass firings at big employers as tech companies, after prospering during the pandemic, experience slower growth and face major cutbacks.
- Meta announced the the first major job cuts in the company's 18-year history, cutting 11,000 jobs.
- Meta shares were up more than 7% at 11:25 a.m EST in the wake of the announcement.
- Meta has been hurt by a slowdown in advertising spending.
- The cuts came after CEO Mark Zuckerberg poured billions of dollars in developing the metaverse rather than focusing on the company's core social networking businesses.
- The Meta job cuts are the latest sign of pain in the tech sector, coming after Twitter Inc. and Snap Inc. announced layoffs.
Investor Calls for 20% Job Cuts at Meta
Many Meta shareholders have raised concern about Zuckerberg’s decision to pour billions into developing the metaverse rather than focusing on its core businesses. Last month, Meta investor Brad Gerstner, founder and CEO of Altimeter Capital, wrote in an open letter to Zuckerberg that the company needs to reduce headcount by at least 20% and cut annual capital expenditures by $5 billion from $30 billion.
Zuckerberg said in a letter to employees that his overestimates of the company’s prospects had led to overstaffing. He also acknowledged shifting resources to a ``smaller number of high-priority growth areas,’’ including the metaverse.
“Unfortunately, this did not play out the way I expected,” he wrote. “I got this wrong, and I take responsibility for that.”
Meta’s stock rose about 4% in premarket trading on Wednesday after Meta announced the layoffs and was up more than 7% as of 11:25am EDT. The stock has fallen 70% on the year on concern about the company’s spending and weak earnings. It fell to its lowest since 2016 last Thursday, wiping out more than $89 billion of market value, after reporting a drop in revenue in the second quarter.
Meta Faces Growing Competition from TikTok
The company’s focus on growth and expansion into new areas came amid rising borrowing costs, a global economic slowdown and a drop in digital advertising, the source of most of its revenue.
Meta also has faced growing competition from social media giant TikTok.
The Meta job cuts are just the latest sign of pain in the tech sector, coming after Elon Musk, Twitter Inc.’s new CEO, fired almost half of the company’s workforce.
Social media application Snap Inc. announced it will lay off 20% of its staff as well. Other companies, like Lyft Inc. and business software company Salesforce inc., have also started to cut jobs.
As tech companies struggle, the tech-heavy NASDAQ Index has lost almost 30% of its value, compared with the 19% decline in the S&P 500 for the year. Industry leaders like Meta, Microsoft and Amazon all announced weak third quarter earnings, leading to declines in their stocks.
This most recent quarter’s earnings season will go down “as one of Big Tech’s worst,” Wedbush Securities analyst Dan Ives wrote.
Layoffs are not the only way Meta will look to regain investors’ trust, as Zuckerberg also announced Meta will be changing in other ways. “I view layoffs as a last resort, so we decided to rein in other sources of cost before letting teammates go,” he wrote on Wednesday. This includes scaling back budgets, reducing employee perks and “shrinking our real estate footprint.” Meta will also extend its hiring freeze through Q1.
While the employees fired have not been officially named yet, Zuckerberg specifically mentioned employees in the recruiting and business teams as being laid off when talking with executives Tuesday.