The Scoop #32: Meta's Historic Layoffs
Meta and Twitter have both laid off more staff. However, Adyen and hundreds of other companies are actively hiring - and I have created a detailed list of 750 of them. Plus: Gitpod’s product roadmap.
The Scoop is a bonus series covering insights, patterns, and trends I observe and hear about within Big Tech and at high growth startups. Have a scoop to share? Send me a message! I treat all such messages as anonymous.
The Scoop sometimes delivers firsthand, original reportage. I’m adding an ‘Exclusive’ label to news that features original reporting direct from my sources, as distinct from analysis, opinion, and reaction to events. Of course, I also analyze what’s happening in the tech industry, citing other media sources and quoting them as I dive into trends I observe.
Today's topics are:
Meta’s historic layoffs. I have long maintained my opinion that Meta was unlikely to do layoffs, and terminating employees should be avoidable. Yet, Meta let 13% of staff go a week ago. Why did the company do this, and where did I go wrong with my prediction? Analysis.
Twitter 2.0: full reset. Only three weeks after taking over the company, Elon Musk seems to be pushing for a full culture – and personnel – reset at the social media company. Exclusive details.
Gitpod’s product roadmap. The cloud deployment environment scaleup has raised $25M in funding. I talked with the co-founder and CEO about their plans, and how Gitpod is different from GitHub Codespaces. Exclusive.
Adyen: investing while others are laying off. Adyen is a competitor to Stripe, processing a similar number of bookings, aka gross merchandise value (GMV). Their CEO issued a note to explain why they will not reduce headcount. Analysis.
Who is still hiring? I asked the tech community for details of which companies are hiring for software engineering and engineering management roles. A list of more than 750 companies.
1. Meta’s historic layoffs
I have long maintained my opinion that Meta was unlikely to do layoffs. In April of this year, I wrote:
“Meta is a company where some expect that layoffs will happen, but I’m not one of them. Yes, Meta’s growth is slowing, but they can control costs just by extending a hiring freeze if they need to. I would be surprised if any layoffs would be on the table the coming months.”
In October, I asked the question: will Meta do engineering layoffs? My view was this:
“It’s all down to what Zuck decides.
Managers tell me it’s clear the strategic decision – and whether layoffs happen – will be made by Zuck. And the engineers I talked with came to the same conclusion.”
I then proceeded to predict that Meta likey doesn’t need to do layoffs, because attrition will take care of itself, and closed with saying:
“Just because Meta doesn’t need to do layoffs, doesn’t mean it won’t. As much as I’d like to be able to predict what may or may not happen at the company, there’s plenty of information I don’t have which could influence this decision.
I would repeat that the first round of layoffs at any company has a devastating impact on the culture. So far, everything I see seems to suggest Meta’s leadership wants to avoid layoffs at all costs.”
On Wednesday 9 November, Meta executed a 13% layoff. Although I feel correct in the assessment that company leadership wanted to avoid layoffs, they executed them nonetheless and the decision, as predicted, did come from Zuck. The cuts impacted 11,000 people.
So what led to this? A few things.
Meta’s revenue is simply not growing fast enough. In Meta’s Historic Growth Challenge, I suggested that just by allowing attrition to slightly reduce headcount expenses, Meta could catch up with profitability. However, what I did not account for was how attrition was likely too slow to wait for, and not fully within the company’s control. Layoffs, however, are:
The stock price pressure likely became too much. Meta’s stock price dipped under $100 for the first time on Thursday, 27 October, a week before layoffs. The stock dropped by 26% that day, which was the biggest one-day drop, after the company forecast weaker-than-expected revenue growth for Q4 2022.
The stock drop meant the company was valued as low as it was seven years ago, Back then in 2015, Meta had total annual revenues of $17B, and profits (net income) of $3.6B. In 2022, the company now had total revenues of $118B and profits of $28B. So, how is it possible that with a 10x in revenue and an almost 8x in profits, the company is valued the same?
This has to do with how, until 2022, Meta was valued as a growth stock. I covered why growth stocks are priced differently and are worth more in the article, Netflix: what happens when the growth ends. With growth halting, investors were pricing Meta pessimistically, expecting profits to keep decreasing.
The stock price drop is a big problem for Mark Zuckerberg, because a low price means the total compensation of many Meta employees sharply drops. With a low stock price, attrition will happen as people leave because they are earning less – especially in senior positions for which compensation packages are equity-heavy.
As well as shrinking employee stock packages, Zuck also faced mounting investor pressure. A publicly traded company, after all, exists to serve shareholders. Though Zuck cannot be removed as CEO from the company, thanks to the dual-class shares he holds, the pressure would have kept mounting.
In the end, the business rationale was to do layoffs even if it hurt morale. I have argued previously that if Facebook had a “career CEO,” then this executive would have likely have done layoffs much sooner. In all fairness, it was clear Zuck exhausted all other options before doing layoffs: the company froze hiring from April this year, intern offers were not extended, 2023 intern offers were rescinded, non-FTE offers were canceled and full-time offers for Rotiational Engineers were not extended.
As Zuck summarized:
“We’ve cut costs across our business, including scaling back budgets, reducing perks, and shrinking our real estate footprint. We’re restructuring teams to increase our efficiency. But these measures alone won’t bring our expenses in line with our revenue growth, so I’ve also made the hard decision to let people go.”
The mood is grim inside the company, based on my conversations with current software engineers and recruiters. About 10% of software engineering was let go. Tech recruitment was hit much harder, with up to 50% of teams affected in some areas. That tech recruitment was more impacted is no big surprise, given Meta is planning little hiring during 2023. Tech recruiters reported they were caught off guard by how hard the layoffs hit them.
The software engineers I’ve talked with are relieved if they are unaffected. However, there are worries about the upcoming PSC performance cycle, starting in January.
People tell me the biggest change in the culture is that the former transparency is gone. At the old Facebook, people were used to getting news from leadership, first. However, they read reports about layoff in the Press, before leadership told them anything. During all-hands, an employee mockingly asked if they could expense the Wall Street Journal to get about important news first.
In all fairness, there is no good way to do layoffs, and any decently executed layoff requires preparation ahead of time. If information leaks during this period, it causes stress for people.
What does this layoff at Meta mean for the rest of the industry? Unfortunately, nothing good. Meta was the holdout company whose founder CEO could afford to not do layoffs, despite mounting investor pressure. The rest of Big Tech does not have this luxury, and I expect these cuts now erase the stigma of layoffs within Big Tech. We can, sadly, expect that in the coming year, more Big Techs will reach to terminate people as a quick and convenient way to reduce costs and increase profits.