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Facebook and Zuckerberg Make Painful Decisions

Social-media giant Facebook is going through a tough time marked by stagnant growth.
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Facebook is starting to look like a shadow of its former self. 

The giant social-media company, now known as Meta Platforms  (META) , has been on a slide this year, with the shares down 58%. 

The market capitalization of the owner of Instagram and WhatsApp is now only $383 billion, the lowest level Mark Zuckerberg's empire has reached since 2019. 

At that time Facebook was mired in the Cambridge Analytica scandal. The social network had allowed the consulting firm, which partnered with the Donald Trump campaign team ahead of the 2016 presidential election, to harvest private data from tens of millions of its users. The data in turn enabled it to profile voters.

The group has fallen from the top echelon of the most valuable companies. At last check it ranked as the world's 11th most valuable company. Contrast that with September 2021, when Zuckerberg's company had reached what on Wall Street is the hugely significant threshold of $1 trillion in market capitalization, specifically $1.078 trillion.

Reduce Expenses by at Least 10%

The horizon looks increasingly bleak. CEO Zuckerberg last June said that "if I had to bet, I'd say that this might be one of the worst downturns that we've seen in recent history." 

To face these difficulties, Facebook wants to reduce its costs and more particularly to cut jobs. According to The Wall Street Journal, the firm wants to reduce its expenses by at least 10% in the coming months in the face of stalling growth. 

Sources told the newspaper that drastic staffing cuts are expected in the coming months. Some downsizing has begun: Facebook is reorganizing some departments and giving affected employees little time to try to find different roles in the company.

Tracy Clayton, a spokesperson for Facebook, did not deny the Journal's report. He referred to remarks Zuckerberg made during the second-quarter-results conference call. The CEO had indeed warned that the company would be cutting jobs.

"Our plan is to steadily reduce headcount growth over the next year," Zuckerberg told analysts. 

"Many teams are going to shrink so we can shift energy to other areas, and I wanted to give our leaders the ability to decide within their teams where to double down, where to backfill attrition, and where to restructure teams while minimizing thrash to the long term initiatives," 

He added: "This is a period that demands more intensity, and I expect us to get more done with fewer resources. We're currently going through the process of increasing the goals for many of our efforts. 

"Previously challenging periods have been transformational for our company and helped us develop our next generation of leaders. I expect this period to be no different. I expect we'll find a way to keep investing in our top priority areas, and I think we're going to come through this period as a stronger and more disciplined organization.”

Pushing Employees Out

A few weeks earlier, Zuckerberg had told employees that the company was going to set aggressive goals and that people who thought they couldn't reach them should leave. "Realistically, there are probably a bunch of people at the company who shouldn't be here," the chief executive said. 

"Part of my hope by raising expectations and having more aggressive goals, and just kind of turning up the heat a little bit, is that I think some of you might decide that this place isn't for you, and that self-selection is OK with me," he added.

All this is part of a general movement to reduce expenses starting in 2021. 

Indeed, in the 2021 third quarter the company said that it expected 2022 full year guidance to be in the range of $91 billion to $97 billion. As of the 2022 second quarter, Facebook said its expenses should be between $85 billion and $88 billion, which means the company hopes to lower its costs by at least $3 billion more than it had planned.

Facebook employed 83,553 people as of June 30, up 32% from 63,404 as of June 30, 2021, according to a regulatory filing.

The economic slowdown and a probable recession threaten the revenues Meta generates from its bread-and-butter Facebook advertising business. But the owner of Instagram and WhatsApp is also losing market share to rivals. 

TikTok, the short-video platform, in recent months has become one of the favorite avenues for advertisers targeting Gen Z and millennials. 

In addition, Apple's  (AAPL)  change in privacy-protection policy now prevents Facebook from tracking the online habits of its users and then displaying ads corresponding to their history of online interactions.