Once counted among the dominant leaders in the broader technology space, social media giant and all-around digitalization innovator Meta Platforms (NASDAQ:META) now finds itself struggling against severe macroeconomic pressures. In response, Meta CEO Mark Zuckerberg recently announced sweeping plans, including a hiring freeze and headcount reduction. Now, all eyes focus on META stock as Wall Street awaits whether the changes will spark substantive developments.
As Bloomberg reported, the significance of the workforce reduction is that for Meta, the action is unprecedented. Therefore, the publication notes that it represents the end of an era of rapid growth for the social media network.
In a question-and-answer session, Zuckerberg stated that “the company would reduce budgets across most teams, even those that are growing, and that individual teams will sort out how to handle headcount changes. That could mean not filling roles that employees depart, shifting people to other teams, or working to ‘manage out people who aren’t succeeding,’ according to remarks reviewed by Bloomberg.”
“I had hoped the economy would have more clearly stabilized by now,” Zuckerberg said. “But from what we’re seeing it doesn’t yet seem like it has, so we want to plan somewhat conservatively.”
Earlier this year, Meta warned investors about a slowdown in the digital advertising space. Therefore, the company could end up generating less revenue than expected. Unfortunately, Zuckerberg’s latest statements present an unadulterated admission that circumstances fail to align favorably. Therefore, META stock could incur more pain, a trajectory that Meta seeks to arrest through restructuring initiatives.
Layoffs Not a Clear Panacea for META Stock
On the surface level, the tech platform’s hard decision to freeze hiring and potentially terminate underperforming employees augurs well for META stock. All other things being equal, it implies that management takes the issue of cost control seriously. However, research into the topic of layoffs offers a complex and nuanced narrative.
Per the Motley Fool, researcher Wayne F. Cascio from the University of Colorado’s business school found that “simply cutting jobs isn’t the answer. Companies need to change how the business is run as well.”
“As a group, the downsizers never outperform the non-downsizers. Companies that simply reduce headcounts, without making other changes, rarely achieve the long-term success they desire,” Cascio said.
Indeed, criticism exists regarding Meta not addressing the fundamentals. “I’m not sure there’s a core business that works anymore at Facebook,” said Laura Martin of Needham, the only analyst among the 45 tracked by FactSet with a “sell” rating on the stock.
Jeremy Bondy, CEO of app marketing firm Liftoff, weighed in. “I don’t see it spiraling in terms of cash flows in the next few years, but I’m just worried that they’re not winning the next generation.”
Put another way, the layoffs at the social media company may be an important step. However, it’s one of many steps, according to various analysts. Without forging a pathway to forward relevance, META stock could still end up suffering, irrespective of new hiring dynamics.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.