• November 29, 2022

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Key Takeaways

  • Meta are rumored to be announcing significant layoffs in the coming days which could number in the thousands.
  • It’s the latest blow for the company, with their Q3 revenue numbers down 4% and the metaverse plan burning almost $10 billion a year.
  • They’re not alone, with other tech companies such as Shopify, Netflix, Robinhood, Snap and Coinbase all making big headcount reductions this year.
  • For investors, straightforward tech investing has become a lot more difficult. Luckily, there are options available that use the power of AI to gain an edge.

And the hits keep coming. All we’ve been hearing about lately is inflation and the chance of recession, and now we’ve got another word to add to the list. Layoffs. The tech sector has been rapidly shrinking their head counts all year as stocks crashed from their all time highs.

The list of companies who’ve had to show employees the door is long and contains some very big names. Coinbase was one of the first cabs off the rank, letting 1,000 employees go earlier this year.

Netflix fired 450 staff, Shopify cut their headcount 10%, equating to around 1,000 jobs, Robinhood sacked 23% of their workforce and Snap shrank their numbers by 20%. And lets not forget the most high profile clearout, Twitter. Elon Musk has wasted no time in cutting a huge number of employees off the payroll, with expectations that he could reduce staffing numbers by as much as 75%.

So far Meta has been reluctant to make such sweeping moves, but that looks like it’s about to change. Facebook’s parent company had previously implemented a hiring freeze, but that’s obviously not seen to be enough to cut costs at a time when volatility and low growth looks likely to persist.

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Zuckerberg’s forewarning earlier in 2022

While this may seem like Meta is late to the party when it comes to tech layoffs, the reality is that this has been a long time coming. Zuckerberg was one of the earlier CEO’s to signal a change in the status quo, stating in May that Meta employees should be ready for an “intense period” of 18 to 24 months.

Ominously, he had asked his management team to begin to identify weak performers, signaling that this particular round of layoffs has probably been months in the making. He even went so far as to say back in May that “Our plan is to steadily reduce headcount growth over the next year.”

Worse than that, he even went on to say that “There are probably a bunch of people at the company who shouldn’t be here.” Ouch.

The situation has obviously deteriorated even further since then, given that they appear to be targeting cuts rather than simply implementing hiring freezes and slower growth.

The downsizing plan

The details aren’t yet known with an announcement expected outlining the details on Wednesday. Mass layoffs at Meta are likely to have much wider consequences than some other tech downsizing occurring.

This is purely due to the size of the company. Meta’s business now includes Facebook, Instagram, WhatsApp, Oculus and dozens of other smaller teams under the parent umbrella.

With a workforce numbering 87,000, even a relatively small percentage cut in staffing will equate to thousands of workers leaving the company. Luckily for them the overall job market in the US remains strong, but the situation in Silicon Valley is likely to make walking into a new position slightly more complicated than it has been over the previous two years.

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Meta has been under intense scrutiny over the past 12 months, with their valuation falling to a ‘mere’ $250 billion after hitting the trillion dollar mark in 2021.

Mark Zuckerberg’s push into creating their own version of the metaverse (hence the new name) is also costing the company an absolute fortune. Last quarter the metaverse unit, Reality Labs, lost $3.7 billion, bringing the total losses of that division to $9.4 billion this year.

That means Meta has lost the equivalent of the market cap of a company as large as Paramount, Robinhood, American Airlines or LG.

Why are Meta laying off workers now?

Just like much of the tech sector right now, Meta is under pressure. So far things have been ticking along ok (other than the share price), but all this talk of an upcoming recession has seen advertisers pull back on their marketing budgets.

This has seen demand for digital advertising start to soften, with companies who rely heavily on ad revenue all expecting a slowdown in the coming month.

Their Q3 earnings call revealed a drop in revenue and profit while also showing a 19% increase in spending. That’s not good news, but the forecast was even more gloomy. Meta expects revenue to remain flat and also suggested that expense will continue to climb.

The market did not respond kindly, with the share price losing almost a quarter of its value after the announcement.

This is likely one of the reasons why Meta are being forced to cut costs. Zuckerberg has committed to making the metaverse work, and it’s proving to be an expensive exercise. Cutting expenses from other departments will allow him to continue to spend heavily on Reality Labs

What does this tech volatility mean for investors?

Look, we’re not going to sugar coat it, boom times are probably still a way off yet. Tech investing over the last few years has been pretty easy. Really, it’s been a bit of a cake walk for the last decade.

We’re seeing this situation change a bit and it’s more than likely going to continue, at least in the short term.

So there are a few different ways investors can approach this. The first is to change up their overall strategy. Tech focused portfolios have been great, right now they’re not, but there are still a huge number of companies doing very well and growing their stock price.

Energy producers are one obvious example. With sky high oil and gas prices, companies like BP (+41.07%), Shell (+46.16%) and Exxon Mobil (+78.63%) have seen their stock rocket.

It’s not just oil stocks though. Johnson & Johnson (+1.10%) and McDonalds (+2.95%) are holding up well and others such as Lockheed Martin (+34.53%) are growing strongly.

The point is, now might be a good time to cast the net a bit wider. Our Active Indexer Kit is a good option for this, because it invests across the broader US market, but with a twist.

We use AI to predict how different sectors of the market are likely to perform in the coming week, and then automatically rebalance the Kit to take advantage of the projections. Not only that, but this Kit allocates funds specifically to two tech ETFS, meaning it can increase or reduce the tech exposure as appropriate.

It’s for investors who want to capture the overall market, without going for a full index-only approach.

Other investors might want to stick with a tech heavy portfolio, our AI-powered Portfolio Protection can provide some downside help should the volatility continue.

This works by having the AI analyze your portfolio each week and assess its sensitivity to a range of different risks such as market risk, oil risk or interest rate risk. It then automatically implements sophisticated hedging strategies to offset them.

This can be paired with our Foundation Kits such as the Emerging Tech Kit, to capture the upside potential of the sector while also providing some support on the downside.

It’s the kind of feature that is usually reserved for high flying hedge fund clients, but we’ve made it available for everyone.

Download Q.ai today for access to AI-powered investment strategies. When you deposit $100, we’ll add an additional $100 to your account.

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