At the close of the stock market on Wednesday, Meta’s share price plummeted on CEO Mark Zuckerberg’s aggressive artificial intelligence and mixed reality spending plans, which wiped out more than $200 billion in market valuation.
Investors overlooked its strong first-quarter earnings and focused on the large costs that the tech giant will incur in building out its AI strategy—a major deviation from Meta’s self-touted belt-tightening “year of efficiency” in 2023.
In the Q1 earnings call on Wednesday, Zuckerberg stated that investments in AI would protract “meaningfully,” and that it would not generate profits in the near term for the social media platform.
He advised those on the conference line to consider the bigger picture, “Smart investors see that the product is scaling and that there is a clear monetizable opportunity there even before the revenue materializes.”
The potential for Meta’s market cap losses to exceed $200 billion raises serious concerns about the job security of its workforce, especially as the company contemplates its next step in placating investors’ concern about boosting growth. Historically, job cuts are the go-to, quick-fix to appease investors.
It also suggests the possibility of broader layoffs and stock price declines across the tech industry, if the current economic challenges persist. Employees at other major tech firms may need to brace for potential job cuts and volatility in the months ahead too, as Meta is seen as a bellwether for what will happen in the tech sector and the overall marketplace.
What’s Going On
The Federal Reserve Bank’s interest rate hikes have made borrowing more expensive, putting pressure on tech companies that relied on cheap capital during the pandemic. Factors like inflation, supply chain issues and the war in Ukraine have created broader economic turbulence, leading investors to be more cautious about riskier tech investments.
Many tech stocks were seen as overvalued during the pandemic boom, and the recent sell-off is a correction as investors reassess their worth. Issues like semiconductor shortages, supply chain disruptions and competition are weighing on the performance of certain tech sub-sectors.
Layoffs Are A Possibility, But Not A Certainty
A lower stock price indicates investors are less confident in Meta’s future earnings potential. This could make it harder for the company to raise capital for future endeavors.
If the downward slide in tech valuations continues, it’s possible there could be an uptick in trimming headcount. Large tech companies, including Alphabet, Meta, Microsoft and others, have already executed significant layoffs in the previous quarters, cutting thousands of jobs, while their share prices appreciated on the news, as investors took it as a sign of being fiscally responsible.
With the renewed effort on Meta and other Big Tech companies to cut costs and focus on profitability, rather than just focusing on rapid expansion, they could enact hiring freezes or become much more selective in hiring. Meta has already slashed around 21,000 jobs since 2022.
Job cuts and instability in the tech sector could make it harder for companies to retain top talent, as workers may seek more stability and job security elsewhere. Conversely, some workers will hunker down and keep grinding to hold onto their jobs. However, a sinking stock price can hurt employee morale, especially for those with stock options as part of their compensation package.
Layoffs within the tech industry create an air of uncertainty and caution in the broader job market. Companies are now facing greater pressure to deliver strong profits and growth. Investors are no longer willing to overlook lack of profitability, and businesses will need to demonstrate a clear path to sustainable earnings.
Zuckerberg reminded his investors that this is all par for the course. “I think it’s worth calling that out, that we’ve historically seen a lot of volatility in our stock during this phase of our product playbook, where we’re investing in scaling a new product, but aren’t yet monetizing it,” he stated.
Meta did not return request for comment at the time of publication.
Source: Forbes
