The technology industry has been going through a tough phase due to the massive layoffs in the last six months. This shows no signs of abating. Meta Platforms, Inc. (NASDAQ: META), the parent company of Facebook, is reportedly planning to terminate thousands of employees by the end of this week. This would be the second round of layoff at Meta, impacting employees’ financial as well as mental health.
In the first round of layoffs that took place in November 2022, Meta laid off its 11,000 underperforming employees. These 11,000 employees accounted for 13% of Meta’s overall workforce. The world’s largest social networking company describes these massive layoffs as an effort to improve operational efficiency.
The directors and vice presidents involved in Meta’s decision-making process need to make a list of the employees that can be laid off during the second round of layoffs. All of these activities must be completed before CEO Mark Zuckerberg takes his paternity leave for his third child, which could happen soon.
In February 2023, Bloomberg News reported that the company was taking steps to streamline its organizational structure, offering buyout packages to managers and eliminating entire teams that it considers unnecessary. This process is still being finalized and could potentially impact thousands of employees.
Meta’s performance review process impacting employees’ morale
Mark Zuckerberg has referred to 2023 as the “year of efficiency” for Meta, and the company communicated this message to its employees during its performance review held last week. However, some employees have voiced their concerns, stating that there has been a lack of productivity due to the inability of managers to plan their workloads effectively.
Furthermore, during its performance review process held in February, Meta has reportedly given “subpar ratings” to thousands of its employees, indicating the possibility of further job cuts in the future.
Senior officials at Meta anticipate that the subpar performance ratings given to some employees will result in more departures from the company in the next few weeks. If there are not enough voluntary departures, Meta will consider conducting a round of layoffs. In addition, these ratings could negatively impact employees’ morale, and some may interpret them as a signal to seek new employment opportunities.
When approached for a comment on this matter, a company’s spokesperson claimed that their review process aims to promote a culture of high performance based on goal-setting, provide employees with actionable feedback, and incentivize high-quality work with a long-term perspective.
According to the people familiar with the matter, managers at Meta assigned a “meets most” rating to approximately 10% of the company’s employees during the performance review process. This rating is the second-lowest possible rating at Meta. The lowest rating, “meets some”, is rarely given by the company. A spokesperson for Meta explained that these ratings are intended to encourage employees to focus on high-quality work and to think about long-term goals.
As a result, employees working at Meta’s headquarters in Menlo Park, California, have recently reported heightened anxiety and low morale. Some employees have also expressed concern about receiving their bonuses, scheduled to be distributed this month if they are laid off before that time.
Reason for this Massive layoff in Meta
Meta’s recent massive layoffs were partly due to the company’s reversal of fortune over the past year. While the company was once valued at $1 trillion in 2021, various factors have negatively impacted Meta’s value and stock price. In Q3 2022, the company reported its first-ever loss in its advertising business. The company’s global ad revenue declined 3.67% YoY to $27.2 billion. In addition, advertisers spent less on ads, with the average price per ad down 18% YoY, despite an increase of 17% YoY in ad impressions.
A majority, or over 97%, of Meta’s total revenue, comes from its advertising business. In 2022, the company generated $113.6 billion in revenue from advertising alone, with a 1% YoY decline. Surprisingly, the social media giant reported a strong decline in its ad revenue during Q4 2022 across all major regions, such as the US & Canada, Europe, and Asia-Pacific.
However, the slowdown in revenue is just one part of the problem. The Meta’s costs and expenses also increased 23% YoY in 2022, with a significant portion spent on Mark Zuckerberg’s metaverse project. In addition, the revenue for the Reality Labs division, responsible for virtual and augmented reality, declined 5% YoY to $2.16 billion during 2022, while expenses increased 27% YoY.
Additionally, the Quest VR headset sales have slowed, bringing into question the release of a new version, the Quest Pro, in 2023. Shareholders are concerned about Meta’s continued spending without regard and do not know when the metaverse project will become profitable. The company has announced that it expects the operating losses of Reality Labs to grow in 2023, further unsettling investors.
Bottom Line
Since the Federal Reserve Board increased the federal funds rate, nearly every major technology company has suffered losses in revenue and value, and Meta is no exception.
Amid the financial pressures, Meta is following the trend of other major technology companies by laying off employees and implementing a hiring freeze.
The ongoing planning for layoffs at Meta, following similar actions by other tech giants, resulted in making the worldwide job market even worse than it already is. With thousands of employees expected to be let go, the impact of these layoffs will be felt not only by those directly affected but also by their families and communities.
As the job market continues to suffer, governments and businesses must work together to support affected workers and create jobs in new and emerging industries. Only time will tell whether the company can handle this storm and appear stronger or if this decline is a sign of future threats.
