Facebook, the largest social network in the world, is seemingly on a roll. But it recently announced plans to cut 13 percent of its workforce as part of an effort to streamline the company. Why has Facebook decided to do this? In a letter to employees, Zuckerberg said he had planned for rapid growth even after the outbreak ended.
But in recent years, Facebook has seen competition from other social networking sites and mobile applications. Its user base is decreasing—so the company has laid off a large percentage of its workforce to reduce costs and reallocate resources.
The company has extended its freeze on hiring and cut back spending to meet its goals. The company has yet to reveal what areas will be affected and how much money can be saved.
It may have been in response to similar layoffs at Microsoft Corporation and Twitter, which Elon Musk now owns. But why did Meta make such dramatic staff reductions—the first in the company's 18-year history?
The need to increase capital efficiency
In his blog post, Zuckerberg explained that Meta had decided to increase the amount of money it generates per share. The company will reduce its real estate holdings and benefits to focus more resources on "high-priority development sectors." Zuckerberg explained that, in order to reduce costs and bring spending into line with revenue growth, he had also made the difficult decision to lay off some employees.
Zuckerberg explained that the rise of online retail and the quick spread of the pandemic disease caused an increase in income inequality. Zuckerberg and Meta thought the acceleration would last forever. They made an investment that improved their chances, but it didn't work out as planned—the company lost money.
Despite a $9.4 billion loss in 2022, Zuckerberg and Reality Labs remain optimistic about the future of social networking. In an internal memo regarding layoffs at Facebook's parent company, he stated, "we're leading the way for establishing next-generation social connections." As investors have expressed dissatisfaction with the money flowing to Metaverse. Its shares plunged more than 71%, according to AP. The company invested over $10 billion into developing and promoting Metaverse that year.
Increased Higher Competition
Meta's CEO mentioned several factors that hurt the company's revenue, including increasing competition and ads signal degradation. Additionally, Apple implemented App Tracking Transparency which affected many ad networks across all platforms.
Apple's App Tracking Transparency is proving to be harmful to Meta. Apple announced a $10 billion loss this year after implementing App Tracking Transparency. As a result, it allows users to prevent apps from tracking them. Young people are increasingly devoted to the video-sharing software TikTok, instead of Instagram. The success of TikTok on social media may be partly due to heightened competition among other video platforms.
Economic deterioration
The economic crisis and the gloomy future for internet advertising have contributed to Meta's problems. The CEO of Meta noted that the macroeconomic downturn had reduced revenues, which were "far lower" than expected. In addition, he predicted that next quarter's results would be dismal, given the company's poor performance in its latest earnings report.
Despite Zuckerberg's continued optimism, Reality Labs, the division in charge of creating the Metaverse (a virtual world), has been losing money. In its earnings report, it experienced $3.67 billion in operating losses last month. Reality Labs saw its lowest sales since the fourth quarter of 2020. At a recent earnings call for that subsidiary company, CEO Mark Zuckerberg predicted operating losses would rise sharply by 2023.
Why is Meta taking cost-cutting measures?
The Metaverse corporation is investing heavily in new technologies to make the company more competitive. During the Covid-19 outbreak, people stayed inside and spent more time online. This led to a boom in tech company profits, but it wasn't sustainable. Facebook also faces tough competition from TikTok today.
Reality Labs saw its first drop in revenue in the fourth quarter of 2020. The company is also expected to continue operating at a loss next year.
Meta is a company that has invested over 10 billion dollars in virtual reality technology each year. It is shifting its focus away from social media, which has threatened investors. Zuckerberg predicts that someday virtual reality will replace cell phones as the dominant form of digital reality.
Final Words
Finally, Meta's shares jumped 4.5% in pre-market trading to $100.80, Reuters reported Wednesday morning. According to Reuters, "the market is breathing a sigh of relief that Zuckerberg seems to have taken some advice seriously. That you need steam out of the expanding expenditure bill."
