Meta to lay off thousands of employees starting this week, reports Wall Street Journal

Technology firm Meta, the parent company of social media websites Facebook and Instagram, is set to lay off thousands of employees starting this week, the Wall Street Journal reported on Sunday, citing those familiar with the development.

The exact number of layoffs is not known yet, but they could be the “largest to date at a major technology corporation in a year”, according to the website. The layoffs which are expected to begin from Wednesday, would come days after Twitter sacked 50% of its staff across the world on Saturday.

The Meta staff has already been told to cancel non-essential travel as part of its efforts to cut costs, sources told the Wall Street Journal.

What led to the potential layoffs?

The possible layoffs have been triggered due to two major reasons – stagnancy in the growth of Meta’s core social media business, and a lack of returns from its new “metaverse” technology, which focuses on augmented reality.

Both these factors have led the Mark Zuckerberg-led company to look for cost-cutting measures.

At a meeting in June, Zuckerberg had told employees: “Realistically, there are probably a bunch of people at the company who shouldn’t be here”, the Wall Street Journal reported.

As life and livelihood shifted to online platforms during the coronavirus pandemic, Meta hired over 42,000 employees between 2020 to September 2022. These employees account for nearly half of the company’s 87,000 staff strength, as reported in September.

The increased spending on this front, added with the Zuckerberg’s thrust on “metaverse”, has resulted in a sharp rise in the expenses of Meta. The company’s free cash flow – or the money available to repay creditors and pay dividends to investors – has declined 98% on a quarter-to-quarter basis in the last three-month period, according to the Wall Street Journal.

After unveiling its “metaverse” in October last year, the company had changed its name from Facebook to Meta, in what the firm said represented everything it was “doing today, let alone in the future”.

The company billed “metaverse” as an augmented reality-based virtual environment which can be accessed by people using different devices. Zuckerberg had said that the technology was a “constellation of interlocking virtual worlds in which people will eventually work, play, live and shop”.

What went wrong?

Meta investors have not been been impressed by the company’s increased spending on its Reality Labs division, which is responsible for the creation of metaverse and its virtual and augmented reality products.

The company has spent over $15 billion (over Rs 1.2 lakh crore) on the project since the beginning of the last year, but visitors to its virtual reality platform Horizon Worlds have fallen drastically, the Wall Street Journal reported.

“I get that a lot of people might disagree with this investment,” Zuckerberg had admitted on a company earnings call last month, stressing, however, on the future “importance of the work that was done”.

After the call, analysts downgraded the ratings of Meta stock and slashed its price targets.

However, the 70% fall in Meta’s stock prices is not just because of the failure of “metaverse” to take off.

Stiff competition from short-duration video platform TikTok and an option given by Apple to its users in some countries to avoid targeted advertisements has also led to an increase in Meta’s spendings, according to the Wall Street Journal.

The company is having to spend more to develop its Reels feature on Instagram to put up a competition against TikTok. Meanwhile, in case of the Apple users who have opted not to allow tracking of their devices, Meta now needs to increase its expenses in order to show targeted advertisements with less data.

What the job losses could look like

A Meta spokesperson declined a comment on the layoffs when the Wall Street Journal reached out to the company. The spokesperson instead referred to a comment made by Zuckerberg in the third-quarter (July-September) earnings call on October 26.

“...Some teams will grow meaningfully, but most other teams will stay flat or shrink over the next year,” Zuckerberg had said, according to the website. “In aggregate, we expect to end 2023 as either roughly the same size, or even a slightly smaller organization than we are today.”

The comments were in line with the company’s decision to disband its Responsible Innovation team in September. The team comprised of more than 20 engineers and ethics professionals who worked with independent privacy specialists, academics and users to identify the potential downsides of Meta products.

After the team was done away with, Meta spokesperson Eric Porterfield had said that its members “would continue similar work elsewhere at Meta, though they aren’t guaranteed new jobs”, the Wall Street Journal reported.