Meta’s path to recovery paved by expensive layoffs

Article by Gadjo Sevilla | Feb 3, 2023

The news: Meta’s stock rebounded and the company briefly enjoyed $500 billion in market capitalization, making Meta the best performer in the S&P Index since November.

Paving the way to recovery: Meta’s shares rose as much as 25% in trading Thursday after CEO Mark Zuckerberg vowed to make the social media company leaner.

Zuckerberg is embracing his role as Meta’s chopper-in-chief.
The company will likely implement more layoffs and divest itself of underperforming business units as it enters its “year of efficiency.”
Meta is reportedly canceling multiple data center projects and closing and merging offices.

Meta’s layoffs were costly: The company may have spent more than $88,000 per employee to cut 13% of its global workforce, per Insider.

The cost of reducing headcount in the company’s most significant job cut ever could indicate continued expenses as the company scrambles to recover.
Meta’s “move fast and break things” mantra might be applied to job cuts, which could result in brain drain within the company.
Layoffs will likely continue to cost Meta money, eating into any short-term gains.

But what about the metaverse? To the delight of Wall Street analysts, Meta’s year-old pivot into a VR metaverse platform provider was hardly mentioned during the earnings call. Instead, Meta’s messaging focused on potential growth businesses like advertising, content feeds, and Reels.

Yahoo reports that Meta is spending more than $1 billion a month on the metaverse, a platform that even Zuckerberg admits is years away from realization.
Investments in VR will continue. Meta won court approval to purchase VR fitness startup Within Unlimited for an expected $500 million.
Owning Within’s Supernatural service and the competing Beat Saber app will give Meta dominance over popular apps on its VR platform.

Our take: Meta will continue to play the shell game, focusing on growth segments and profits, while keeping metaverse developments and expenditures on the down low.