Meta layoffs: Employees paying the price for excessive growth

UPDATE: Meta said on Wednesday it will let go of 13% of its workforce, or more than 11,000 employees, in one of the biggest layoffs this year. The mass layoffs are a first in Meta's 18-year history.

A year ago, the technology giants were riding the wave of the pandemic boom, with double-digit growth in revenues, huge profits, mass recruitments, rapid expansion, and celebration as if there was no tomorrow. But tomorrow, as always, will come. And the tomorrow of the technology giants is today. And those who will pay the price are, as usual, the workers.

The quarterly reports published by the technology giants at the end of October were a far cry from the glory days of the pandemic period. The wild growth was replaced by symbolic growth in the best case scenario, or a decline in some scenarios. And just as in good times everyone is looking for where to throw money, so in bad years they are looking for ways to save it. And the fastest route to saving money in huge corporations is in personnel.

In the last few days and weeks, most of the technology giants have announced a dramatic halt to hiring and even mass layoffs in extreme cases. The most dramatic step is currently being taken by Meta (formerly Facebook), which, according to a report by the Wall Street Journal, is preparing for an extensive cutback process, the first in its history.

Mark Zuckerberg.

According to sources, the company is already planning to fire thousands of employees out of the company's 87,000 employees this Wednesday. In preparation for this, company executives asked employees to cancel non-urgent trips this week. Although in terms of percentages the layoffs will be significantly smaller than the 50% cuts at Twitter, in absolute terms they are expected to be the largest in the technology sector in the current period. At this stage, it is not known whether the layoffs will also include Meta centers in Israel, and to what extent, but in light of their scope, it is doubtful whether the company's local operations will emerge unscathed.

Meta Israel did not comment on the reports on the subject or the possible impact of the layoffs on the local centers, and only referred to what founder and CEO Mark Zuckerberg said in a conversation with investors after the publication of the company's latest quarterly report. “In 2023, we’re going to focus our investments on a small number of high-priority growth areas,” he said. “So that means some teams will grow meaningfully, but most other teams will stay flat or shrink over the next year.”

Meta's move is the latest and most widespread, but by no means the only one. Bloomberg reported last week that in October, Apple halted hiring for most jobs outside of its R&D activities, an escalation of the company's cost reduction process. The freeze does not apply to teams that develop future products or work on long-term initiatives, and is mainly relevant to corporate jobs and current hardware and software roles.

At the same time, according to a CNN report, Amazon also stopped hiring new employees for at least a few months. “With the economy in an uncertain place and in light of how many people we have hired in the last few years, Andy and S-team decided this week to pause on new incremental hires in our corporate workforce,” Beth Galetti, Senior Vice President of People Experience and Technology at Amazon, wrote to company employees. “We had already done so in a few of our businesses in recent weeks and have added our other businesses to this approach. We anticipate keeping this pause in place for the next few months, and will continue to monitor what we’re seeing in the economy and the business to adjust as we think makes sense.”

However, Amazon does not intend to cut jobs and will hire new employees instead of employees who will retire, as well as increase the activity of a limited number of departments in a targeted manner.

Google and Microsoft, who froze hiring earlier this year, have indeed started thawing, but it is slow and measured. Microsoft told investors that new hires this quarter would be "minimal," while Google said it would hire only about half the number of employees it hired in the third quarter of this year.

It's not just the tech giants that are cutting back or freezing hirings. Smaller technology companies are also feeling the impact of the economic situation. The travel booking service provider Lyft announced last week that it intends to lay off about 13% of its workforce, 650 out of about 5,000 employees. The developer of the online payment service Stripe has announced that it will cut about 1,100 employees, about 14% of the workforce. And in August, Robinhood announced cuts of 23% (which came after 9% cuts in April), Shopify announced in July cuts of 10% of its 10,000 employees, and Coinbase cut 18% (approx. 1,100 people) in June.

Behind all these cuts and freezes are several common factors. The fundamental factor is aggressive growth in the first two years of the pandemic. These two years, with the closures, the disruptions and the transition to working from home, brought a tremendous boom to the technology companies. People spent more time in front of screens, shopped more online, purchased more computers, smartphones, tablets and other devices, significantly expanded the use of online services, and looked for other ways to invest money that was no longer spent on outdoor activities or vacations.

All of this translated into several quarters of a significant increase in the revenues and profits of technology companies, so significant that it carried the economic growth of Western countries on its back even while other areas of activity - tourism, leisure, physical trade and more - suffered a dramatic drop in revenues. And what do you do when the demand increases and the money flows? Expand, of course, to meet the demand.

The technology companies directed their excess revenues to massive recruitment of new employees, and grew within two years by several dimensions, a growth that was fueled by a significant jump in demand for their products. But this increase was not completely organic, it resulted from a temporary unique situation and not from a permanent and significant change. With the lifting of the pandemic restrictions and the return to normality, people returned to the things they did before: restaurants, plays, traveling abroad, even working in the office a few days a week. The use of online services has decreased, online shopping has returned to reasonable dimensions, and there is a limit to how many new computers and tablets can be purchased.

At the same time, the companies' activity was also affected by macroeconomic factors, chief among them global inflation and the wave of interest rate hikes by central banks in order to curb it. These directly affected companies whose business model was based on investment activity, such as Robihood, Coinbase and other crypto companies. But also in other technology companies: the decline in business activity as a result of the return to normalcy led to less than pleasing quarterly reports, especially in the profit line which was hit due to inflation. This, together with the rising interest rates, was expressed in higher anxiety than what was deserved among investors who reacted to the reports in an extreme manner (the companies still bring in hundreds of billions of dollars and register profits of tens of billions). The result - a drop in the companies' shares, although part of it is a justified correction of the disproportionate growth from the Coronavirus period, the other part is the result of an overreaction in the other direction.

The inflated organizations, inflation and interest rate increases, and investors' anxieties came together in the third quarter reports of 2022. They led to another round of declines in the shares and left the companies with their backs against the wall: freeze hirings and lay off, or risk the continued decline of the stock and a complete loss of confidence in the markets. It is no coincidence that the companies that suffered the most severe damage are the ones taking the more extreme measures. Meta, which was the only one of the technology giants to report in the third quarter both a decrease in revenue and a decrease in net profit, is going through a significant round of layoffs, at the same time Apple, which was the only one of the giants to report an increase in net profit, is content with freezing hiring outside of its core business.

The current economic situation is serious enough that even the largest and richest companies in the world cannot ignore it. The important question right now is what will happen in the current quarter, the pre-Christmas shopping season and traditionally the most important quarter of the year for many companies, including most of the technology giants. Another disappointing quarter could signal more extensive rounds of layoffs that would have a broad impact on the global economy. A sharp and surprising improvement (which is not very likely) could mark the beginning of the end of the current crisis. We will also settle for an “ok quarter”, one that at least means that we have not deteriorated any further.