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December 05, 2022

More Metaverse, Less Workers: Exploring Meta's Recent Layoffs And Its Relentless Investments In The Metaverse

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A wave of layoffs has swept across the U.S. tech sector in 2022 and is expected to continue into 2023. Tech giants such as Amazon, Meta and Twitter are the latest companies to ride the layoff wave. Amazon plans to layoff as much as10,000 employees, focusing on the company's device organization, retail division and human resources.

As for Meta, it cut its workforce by approximately 11,000, the first major layoff in Meta's 18-year history. Like many of its peers, Meta engaged in aggressive hiring during the pandemic to address the surge in social media usage by stuck-at-home consumers. Now, in the post-pandemic, inflation-riddled, economy that we all find ourselves in, Meta's bottom-line has suffered due to a slowdown in advertising and consumer spending caused by rising costs and rapidly rising interest rates.

In a message to employees, Meta's Chief Executive Officer, Mark Zuckerberg, noted that "at the start of Covid, the world rapidly moved online and the surge of e-commerce led to outsized revenue growth. Many people predicted this would be a permanent acceleration that would continue even after the pandemic ended. I did too, so I made the decision to significantly increase our investments. Unfortunately, this did not play out the way I expected. Not only has online commerce returned to prior trends, but the macroeconomic downturn, increased competition, and ads signal loss have caused our revenue to be much lower than I'd expected. I got this wrong, and I take responsibility for that."

According to Zuckerberg, the layoffs will help Meta become more "capital efficient" and shift its focus onto priority growth areas including its long-term vision for the metaverse. These words, from Zuckerberg himself, strongly indicate that Meta has no plans to slow down its investments in the metaverse. It is speculated that much of the leftover resources from the layoffs will go toward Reality Labs, a subsidiary of Meta responsible for Meta's investments in the metaverse. Despite Reality Labs' losses of $9.44 billion from January to September of 2022, and expected multi-year losses of $10 billion per year, Meta is doubling-down on its metaverse spending spree. One Reality Labs executive recently stated that "the investments we are making in the core business, and the future business, are the right ones."

The move comes at a time when investors are looking for Big Tech to rein in spending in what's been a tough stock market and a slowing economy. Many Wall Street analysts are questioning how long Meta can pour money into its metaverse project in such a weak economy, noting that rising interest rates and a less than ideal economic environment could continue to weigh on the ad market, a primary income stream for metaverse investments. Zuckerberg has said it will take up to a decade for the concept to go mainstream, though he expects the spending will level off in the near future. Reality Labs pushed back on this skepticism, claiming that strong profits by Meta's core business (its social media platform) will offset its losses in the metaverse. However, the reality for Reality Labs is that Wall Street was unhappy with Meta's latest quarterly figures as income declined by roughly half from the previous year, and Meta's operating margin sank.

It's possible that other companies will view Meta's continued investments in the metaverse as a sign that its playing the long game and will follow with continued metaverse investments, regardless of the bleak economic climate. While many companies are laying off employees, LG Electronics recently announced it wants to hire two new Chief Technical Officers to lead its Web3 and blockchain technology operations. Meta's bet on the metaverse is also likely to lead a metaverse arms race as Meta is set to face an increasing amount of competition from its rivals in a market where it has the early lead with Apple expected to release its mixed-reality headset and Google expected to release its smart glasses.

Of course, only time will tell if Meta's investments in the metaverse at the expense of its personnel will lead to a profitable future for the company and its employees and investors.

ALM expressly disclaims any express or implied warranty regarding the OnPractice Content, including any implied warranty that the OnPractice Content is accurate, has been corrected or is otherwise free from errors.

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