Why Facebook has fired 11,000 employees?
The CEO of Facebook parent Meta announced Wednesday that the company will lay off 11,000 employees – about 13 percent of its workforce. This is Meta’s first mass layoff in 18 years, shortly after Elon Musk’s Twitter and Microsoft cut jobs.
How does Meta’s forced layoff reflect the economy, and why did it force thousands of employees to lose their jobs? What will the impact be on Indian workers? We explain.
Other cost-cutting measures have been implemented by Meta to deal with soaring costs and declining ad revenues. To achieve its goals, the company intends to limit discretionary spending throughout the first quarter and extend the hiring freeze. It has not specified which regions will be impacted or how much money will be saved.
In the weeks leading up to the firings, Meta had already been reducing the company’s real estate footprint and removing employee perks like laundry and dry cleaning services and dinners employees were allowed to take home.
What is the reason for Meta’s cost-cutting measures?
The company is pouring money into Metaverse because of falling revenues and as a result of falling profits.
With people staying indoors and spending more time online and on their devices during the Covid-19 pandemic, tech firms experienced a boom. There has been no sustained boom since the pandemic. Also, platforms like TikTok are posing stiff competition to Facebook.
Zuckerberg writes in his letter that covid grew in revenue as e-commerce surged and the world moved online rapidly. My decision to significantly increase our investments was the result of the prediction that this would be a permanent acceleration… Many others did as well, so I acted accordingly. My expectations were not met. The macroeconomic downturn, increased competition, and ad signal loss have not only returned online commerce to its former trends, but have also caused our revenue to be much lower than expected. It’s my fault that I got this wrong.”
The funds going to Metaverse have also angered Meta’s investors. AP reported Meta’s shares have tumbled more than 71% since the beginning of this year as it invests over $10 billion each year in the metaverse.
It was reported in the New York Times that Meta, which works on the metaverse, had $3.67 billion in losses in its earnings report last month. Also, Reality Labs’ revenue dropped for the first time since the final quarter of 2020. Reality Labs is expected to suffer increased operating losses next year.”
Meta’s revenue declined in the summer and again in the fall due to the economic slowdown in the US.
11,000 Facebook employees were fired for these eight reasons
The world’s largest tech company cut 13% of its workforce in an unprecedented move. Eleven hundred employees have been asked to leave Meta, Facebook’s parent company. A blog post by Meta CEO Mark Zuckerberg described these changes as some of the hardest in the company’s history. Here are the eight reasons why Meta fired many employees:
- Increased investments in e-commerce
A surge of e-commerce and the rapid spread of the pandemic led to outsized revenue growth, according to Zuckerberg. Meta and Zuckerberg believed the acceleration would be permanent. Investing significantly increased my decision. The company’s revenue was lost as a result of this not playing out the way I expected.
- The downturn in the economy
Meta’s CEO noted that revenues were “much lower” than expected due to the macroeconomic downturn. It isn’t looking good for Meta’s next quarter either, as its quarterly results did not paint a positive picture.
- Increasing capital efficiency is necessary
As Zuckerberg noted in his blog, Meta had decided to become more capital efficient. By reducing its real estate footprint and reducing perks, the company will spend more resources on “high-priority growth areas.” “I have also made the hard decision to let people go because these measures alone will not bring our expenses in line with revenue growth,” said Zuckerberg.
- Rising costs and expenses
Over the past year, Meta’s costs and expenses have increased by 19%. According to Meta’s third-quarter expenses, the company spent $22.1 billion – so employees have lost their jobs.
- A billion dollars was lost in Metaverse
Despite losing nearly $9.4 billion in 2022, Zuckerberg and Reality Labs still have ambitious plans. In his blog post informing employees about the layoffs, he said, “We’re leading the way in developing the next generation of social connections.”
- TikTok, Apple, and more
Aside from Apple’s App Tracking Transparency, Meta’s CEO noted that “increased competition” and “ads signal loss” were other factors that impacted revenue. This implies that Meta has been hit hard by Apple’s App Tracking Transparency. Earlier this year, Apple reported a loss of $10 billion since it adopted App Tracking Transparency – a feature that allows users to block apps from tracking them. The dominance of TikTok in social media could very well be the result of increased competition.
- Losses are expected at Reality Labs
The division that is responsible for the metaverse, Reality Labs, has been bleeding money, even though Zuckerberg remains optimistic about it. Last month, at Reality Lab’s earnings call, Zuckerberg stated that operating losses would increase significantly year over year in 2023.
- Decline in sales and income
Meta revealed a 4% decline in sales and a 46% drop in operating income in the third quarter.
Why is now a good time for the economy, and what does this signal about it?
For the first time in its history, Meta had to lay off large numbers of employees for economic reasons. Across the globe, digital platforms have seen their ad revenue plummet as the first signs of a global recession appear.
Despite Apple’s introduction of App Tracking Transparency in iOS, Meta is still worse off. Users can refuse developers’ permission to create a unique ID that can track their behavior and present ads based on it. It will reduce the efficiency of ads on Meta and other platforms. This is estimated to cost Meta at least $10 billion this year.
Before Wednesday’s bell, Meta’s shares rose 4.5% to $100.80, according to Reuters.
In Reuters’ opinion, the market is relieved that Meta’s management or Zuckerberg specifically is heeding some advice that it should take some of the steam out of the growing expenditure bill. Sophie Lund-Yates is an analyst with Hargreaves Lansdown.
According to her, “It doesn’t quite make sense to strive for efficiency while pursuing something so ambitious and fanciful as the metaverse.”
It is clear, however, that Zuckerberg plans to continue working on the metaverse. In his letter, he noted that his company has dedicated more resources to high-priority areas such as the AI discovery engine, the advertising platforms, and the metaverse in the long run.
Meta’s letter discusses how it will treat fired employees who are on visas or overseas.
Having a visa is especially challenging. It takes time to make plans and work through immigration status, so there is a notice period before termination and some visa grace periods. We have immigration specialists who are dedicated to helping you and your family obtain the right visa for your situation. We will follow up with separate processes that will take local employment laws into account in places outside the US,” the letter states.
