Mark Zuckerberg, founder and CEO of Meta Platforms (META +1.67%), previously dubbed 2023 the "year of efficiency." On March 14, Zuckerberg released an official company news article, updating employees on what exactly efficiency will look like going forward. And for about 10,000 of its workers, it's not good news.
According to Zuckerberg, Meta Platforms will look to let go of about 10,000 of its employees before the end of the year. This move has implications for shareholders. But it also introduces a hefty dose of uncertainty with the business, as I'll explain.
NASDAQ: META
Key Data Points
What's going on
In November, Meta Platforms laid off 11,000 of its employees, which was about 13% of its total employee base at the time. Now, it's laying off 10,000 more and it's also eliminating about 5,000 open positions at the company.
For Meta Platforms, efficiency is more than just laying off workers. It's also about fixing a business that's perhaps become bloated in its structure and vision. The 5,000 eliminated open positions aren't inside of the company's narrowed focus going forward.
With plans to hire fewer people, Meta Platforms doesn't need as many recruiters. And that's where layoffs will begin tomorrow. The company isn't doing its layoffs all at once but rather making cuts in waves. Cuts in its tech groups and business groups will come in April and May, respectively. And some workers might not even be laid off until the end of the year.
The focus on efficiency will extend beyond layoffs. Meta Platforms will additionally look to eliminate unnecessary managerial positions, make sure it has the right mix of technical engineers versus non-technical workers, and will cancel lower priority ventures.
Many of the previous layoffs were in these so-called lower priority projects and apparently Meta Platforms already loves how these reductions improved its business. As Zuckerberg wrote: "Since we reduced our workforce last year, one surprising result is that many things have gone faster. In retrospect, I underestimated the indirect costs of lower priority projects."
Implications for shareholders
Meta Platforms' increasingly inefficient operations can be easily demonstrated in one chart. The company's stellar revenue growth is shown below. But the chart also shows a meaningful drop in revenue per employee. In other words, it's grown its company faster than its grown its business -- suboptimal for shareholders.
META Revenue Per Employee (Annual) data by YCharts
Between November's layoffs and the new round announced today, Meta Platforms is essentially bringing its labor expenses back to historical levels.
However, there's a caveat: This will take time. Not only will layoffs come with severance packages but there will likely also be one-time expenses, including stock options. In short, it could get more expensive for Meta Platforms before improvements are seen.
Moreover, Meta Platforms is pivoting away from lower priority projects but it's clear that its metaverse ambitions -- a loss-leader for the company -- is still among its highest priorities.
The press release said, "Our leading work building the metaverse and shaping the next generation of computing platforms also remains central to defining the future of social connection."
Consider that Meta Platforms' metaverse division (called Reality Labs) has an almost $24 billion cumulative loss from operations over the past two years. And management expects losses for this division to be larger in 2023 than what they were in 2022.
Therefore, Meta Platforms is focusing on efficiency. But it's not abandoning its most expensive venture because it still believes it's the future of the company.
What's going to happen now?
In my opinion, Zuckerberg is rolling the dice with this round of layoffs. In the last round of layoffs, decisions were already made and workers received notice in short order. This time, Meta Platforms is eliminating jobs throughout the year in waves, which could make this unnecessarily difficult.
Zuckerberg says he is trying to be more transparent sooner in the process, after receiving feedback regarding the abruptness of November's layoffs. However, it's possible that the ongoing shadow of future layoffs could darken the mood for workers who are still there, causing reluctance to fully engage in their work because they're unsure of how much time they have left at the company.
In summary, Meta Platforms is facing major shifts in business structure and priorities. These changes could yield cost improvements in time but the benefits won't be immediate. Moreover, expect ongoing losses from the metaverse. And finally, management is faced with a very complicated task of elevating workforce morale so that the core business continues to perform even though these workers now have legitimate job security questions.
Some investors may see a bargain investment in Meta Platforms stock. But there's reasonable justification to wait and see how things go over the next several months before deciding if this stock is a good buying opportunity.
