[Asia Economy Reporter Jeong Hyunjin] Meta Platforms, the parent company of Facebook, is expected to undertake its first large-scale restructuring in 18 years since its founding in 2004. As profits have sharply declined due to reduced advertising revenue and massive investments in the metaverse, the company is implementing layoffs of thousands of employees as part of cost-cutting measures.
Despite Meta's 'belt-tightening,' investors are concerned that CEO Mark Zuckerberg's commitment to investing in the metaverse will further worsen Meta's profitability. It is also difficult to sway the mind of CEO Zuckerberg, who holds 50% of Meta's voting rights.
◆ "Thousands of layoffs expected as early as the 9th"
The Wall Street Journal (WSJ) reported on the 6th (local time), citing multiple sources, that Meta plans to carry out large-scale layoffs this week. According to the report, the layoffs are expected to number in the thousands. As of the end of September, Meta had approximately 87,000 employees. Notifications to affected employees are expected to begin as early as the 9th. Sources said senior company officials have instructed employees to cancel non-essential business trips starting this week.
Meta significantly expanded its workforce during the pandemic. It hired 27,000 employees in 2020 and 2021, and more than 15,000 employees have joined the company from January to September this year.
WSJ stated, "The planned layoffs will be the first workforce reduction in Meta's 18-year history." It added that although the scale will be smaller than Twitter's layoffs of 3,700 employees?half its workforce?following Elon Musk's acquisition, it will still result in many employees leaving compared to other major tech companies that have conducted layoffs.
This year, Meta has faced difficulties with declining revenue for the first time ever and a stock price drop exceeding 70%, ranking last among S&P 500 companies. In February, it recorded its first-ever monthly active user decline and a negative revenue growth due to decreased advertising revenue.
In response, CEO Zuckerberg announced during the Q3 earnings report on the 26th of last month that the company would focus investments on prioritized areas, stating, "This means some teams will see meaningful growth next year, but most other teams will either remain the same or shrink," signaling impending layoffs.
This is not the first time Meta has pursued cost reductions this year. In September, Meta announced plans to reduce costs by at least 10% over the coming months through workforce reductions. CEO Zuckerberg also remarked in a June internal meeting that "there are probably people in the company who realistically shouldn't be here." After several warnings, it appears the company is moving toward large-scale layoffs involving thousands of employees.
◆ Is Zuckerberg the problem at Meta?
"There is one problem behind Meta's stock price rampaging like a bull: Zuckerberg." Bloomberg recently reported that the market identifies CEO Zuckerberg as an obstacle for Meta. Just one year after changing its name from Facebook to Meta Platforms, the company is struggling with concerns over increased costs. Despite recession fears, CEO Zuckerberg continues to express his commitment to investing in the metaverse as a growth engine. Last month, during the earnings announcement, he emphasized to investors, "Thank you for your patience, and I believe those who invested in us will ultimately be rewarded."
However, contrary to Zuckerberg's statements, investors are worried. Generally, publicly traded U.S. companies cannot easily ignore shareholders' demands for increased profitability. But Meta's governance structure makes it difficult to pressure CEO Zuckerberg.
Meta's stock is divided into Class A and Class B shares. Class A shares are held by general investors, while Class B shares are held only by a select few, including CEO Zuckerberg. Class A shareholders have one vote per share, whereas Class B shareholders have ten votes per share. As CEO Zuckerberg holds 90% of Class B shares, he owns only 13% of the total company equity but controls 54.4% of the voting rights.
Jay Ritter, a professor at the University of Florida, told Business Insider, "Until this year, Facebook's stock performed very well, so even Class A shareholders with fewer voting rights had reasons to invest," adding, "Now, selling the stock is the only option." Last November, Frances Haugen, a former Facebook senior project manager and whistleblower, pointed out that this structure makes it difficult to remove CEO Zuckerberg and emphasized that shareholders should have the power to choose the CEO.
In this regard, The Economist from the UK reported that governance issues in big tech companies have become important, noting that Meta and Alphabet, Google's parent company, have founders holding more than 50% of voting rights, allowing them to ignore other shareholders' demands. Amazon founder Jeff Bezos holds less than 15% of voting rights, and Apple and Microsoft (MS) founders hold none, The Economist added.
Amid this situation, Meta investors proposed at the annual shareholders' meeting earlier this year to abolish Class B shares. The proposal received 28% support, higher than the 17% approval rate for a similar proposal in 2014, but still insufficient to pass. Brad Gerstner, CEO of hedge fund Altimeter Capital, which owns 2 million Meta shares, sent an open letter to Meta demanding a 20% workforce reduction and cutting metaverse investments to below $5 billion (approximately 7 trillion KRW) annually. A foreign media outlet evaluated this as "shareholders, having no official way to demand policy changes, resorted to persuasion."
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