Upcoming Meta Layoffs May Dent Its Metaverse Ambitions
Mark Zuckerberg has bet big on the metaverse but the current economic headwinds and the slow uptake in the technology have seen the company hemorrhage money, something that has alarmed Meta investors.
Zuckerberg has been spending approximately $10 billion annually on its virtual reality and augmented reality projects which the Meta boss believes represent the next frontier in computing that will eventually replace smartphones and personal computers. At the moment, Zuckerberg’s lofty metaverse ambitions are only hurting the company’s bottom line and margins, something that has obviously not gone unnoticed by Meta’s investors. Meta’s metaverse ambitions are powered, primarily, by advertising revenues from its apps division including Facebook, Instagram, and WhatsApp.
Meta’s stocks have tumbled 72% ever since the company rebranded from Facebook to its current name last fall. Yesterday, the Wall Street Journal reported that Meta is planning to lay off thousands of staff as it seeks to cut costs. The actual number of staff to be laid off is still not known.
It isn’t clear whether Meta’s Reality Labs division will also be affected by these staff cuts. It is the Reality Labs division that is in charge of building the company’s metaverse hardware and software. This division is at the core of Zuckerberg’s vision of the future of computing and also the one that is currently hemorrhaging money and getting investors jittery and angry.
With the layoffs, Meta is putting a reality check on its metaverse spending.
Facebook had already frozen new hires and some projects in a bid to cut costs according to a May Reuters report. This was followed by a freeze in hiring and investments in other units. In an internal all-hands meeting on May 12, Zuckerberg told Meta staff that the company may have to consider layoffs in the future.
In its third-quarter earnings report, Meta also told investors that the company had 87,314 employees. This is 28% more than the company’s headcount from the same period last year. 17,000 of these employees or approximately 20% work in Meta’s Reality Labs division.
Should Meta’s looming mass layoffs happen, they will also likely affect the teams working on its futuristic metaverse projects which are a major priority for the company. During the third-quarter earnings call on October 26, Zuckerberg told investors that the company will likely end 2023 either with the same size of headcount as this year or as a “slightly smaller” organization than it currently is. The “slightly smaller” reference was interpreted as a pointer to possible cutbacks in its headcount.
Meta is currently pumping billions of dollars into virtual reality, augmented reality, and its VR social network Horizon Worlds which it envisions as a future 1-billion-user metaverse platform. However, it might take a decade for Meta to realize a profitable metaverse. Meta is expected to pump $100 billion into the metaverse over the next 10 years and for investors, such a massive investment in an unknown and largely untested technological realm is a terrifying prospect.
In spite of investors’ jitters and pushback, Zuckerberg is unlikely to walk back from a metaverse obsession in which he has put a loy of energy and tens of billions of dollars and these projects will remain a priority for the technological giant. Meta’s Reality Labs operation lost $10 billion in 2021 and in 2022, these losses are only accelerating. Meta’s metaverse-related losses in 2022 have already surpassed $9 billion with slightly under three months to go so these losses will likely surpass the 2021 losses it incurred from its immersive computing pursuits.
Meta Reality Labs netted $2 billion in revenues in 2021. In 2022, the division has pulled in just $1.4 billion in revenues and will likely fall short of last year’s revenues. Investors are deeply worried about Zuckerberg’s metaverse push due to this revenue-to-expenditure imbalance. The company is spending more than $10 billion on its metaverse projects and netting just under $2 billion in revenues this year.
The looming layoffs may also affect Meta’s metaverse-focused employees although Zuckerberg has been categorical that the company’s current metaverse-focused trajectory will not be shifting any time soon. During the last earnings call, he told investors that the company’s metaverse play was “fundamentally important to the future.”