Meta Platforms (META) is not doing well. The social-media giant, parent of Facebook, Instagram and WhatsApp, has been sending alarming signals for several months.
It was ejected from the world's top 10 most valuable companies, and this year its market capitalization has fallen by nearly $545 billion.
During the third quarter, which is about to end, the shares have fallen some 15%, which by itself translated into a drop of $57.5 billion in market value from July through September.
Chief Executive Mark Zuckerberg, who warned at the end of June that we were headed for the "one of the worst downturns that we've seen in recent history," has just made some announcements that suggest that Meta's short-term future faces a serious cloud cover and impending storm.
Facebook Makes First Head-Count Reduction
On Sept. 29, during Meta's traditional weekly Q&A session, the billionaire informed employees that the company was entering a new era marked by lackluster growth.
Meta will reduce its workforce for the first time since it was founded in 2004, Zuckerberg told employees. This involves several actions: The firm will freeze hiring, restructure some teams and reduce budgets even for teams in growth sectors.
Meta should, for example, not replace departures, and will part ways with people "who aren't succeeding," Zuckerberg told employees.
"I had hoped the economy would have more clearly stabilized by now," Zuckerberg said, according to Bloomberg. "But from what we're seeing, it doesn't yet seem like it has, so we want to plan somewhat conservatively."
The boss added that Meta will be "somewhat smaller" by the end of 2023.
"For the first 18 years of the company, we basically grew quickly basically every year, and then more recently our revenue has been flat to slightly down for the first time," Zuckerberg added.
Meta declined to comment. A spokesperson referred to Zuckerberg's statements during the second-quarter-earnings call in July.
"Our plan is to steadily reduce headcount growth over the next year. Many teams are going to shrink so we can shift energy to other areas, and I wanted to give our leaders the ability to decide within their teams where to double down, where to backfill attrition, and where to restructure teams while minimizing thrash to the long term initiatives," Zuckerberg told analysts at the time.
Facebook employed 83,553 people as of June 30, up 32% from 63,404 as of June 30, 2021, according to a regulatory filing.
'Not a Lot of Light Until We Get Into 2023'
Meta seems to have lost its compass, say some analysts, who see the company facing serious obstacles.
"So there are multiple headwinds that they're facing in the interim," said Brent Thill at Jefferies. "Obviously a stall on hiring is suggesting things are getting worse, not better. So growth is gonna go negative this quarter. Last quarter was negative, it could get even more extreme as we go into this economic storm."
"So there's really not a lot of light until we get into 2023," Thill added.
The analyst listed the various challenges facing Meta.
"So you have an ad slowdown, which is the first thing that companies cut when there's an economic headwinds. I think the second component is competition. Obviously there's been a stampede to TikTok."
He continued: "Very few 18 to 25 year olds are still on Facebook, they stampeded over to TikTok. So I think you have a competitive issue as well. In the interim you have revenue stolen, you have big investments going into the metaverse, you have operating margins coming down, and then you have the combined effect of no interest in buying technology right now."
Recession, Tiktok Rivalry Threaten Ad Revenue
The economic slowdown and a probable recession threaten the revenue Meta generates from its bread-and-butter Facebook advertising business. But the owner of Instagram and WhatsApp is also losing market share to rivals.
TikTok, the short-video platform, in recent months has become one of the favorite avenues for advertisers targeting Gen Z and millennials.
In addition, Apple's (AAPL) change in privacy-protection policy now prevents Facebook from tracking the online habits of its users and then displaying ads corresponding to their history of online interactions.
As for the metaverse, seen by Zuckerberg as the company's next big thing, the jury is still out on whether it's really going to become the next big thing. Almost $16 billion has been invested in this, but for the moment, it remains a money pit.
Reality Labs, the division that houses Meta's metaverse plans, recorded a second-quarter operating loss of $2.81 billion. In the first half, losses amounted to $5.8 billion. In all of 2021, Reality Labs had a loss of $10.2 billion.
