‘Worst downturn in recent history’: Zuckerberg issues dire warning on economy

Facebook owner Meta has cut plans to hire engineers by at least 30 per cent this year as it faces intense competition for users’ attention from TikTok and the global technology sector slashes costs because of a stormy economic outlook.

Chief executive Mark Zuckerberg delivered the news to employees this week, delivering a pointed warning that coincides with a wave of layoffs at Australian startups revealed by The Sydney Morning Herald and The Age.

“If I had to bet, I’d say that this might be one of the worst downturns that we’ve seen in recent history,” said Zuckerberg, who is one of the most influential people in the technology world. He made the remarks in a weekly employee Q&A session, according toReuters, which had access to audio from the event.

Meta chief executive Mark Zuckerberg has issued a dire pronouncement on the economy as his company’s share price remains about half what it was at the start of the year.Credit:AP

Meta had initially planned to hire 10,000 new engineers in 2022, Zuckerberg said. In addition to reducing hiring, the company was leaving certain positions unfilled in response to attrition and “turning up the heat” on performance management to weed out staffers unable to meet more aggressive goals,” he said. “Realistically, there are probably a bunch of people at the company who shouldn’t be here,” Zuckerberg said.

Like other technology companies, Meta is bracing for a hard period as interest rates rise along with soaring inflation while consumer confidence plunges. Start-ups are particularly exposed because many are unprofitable and dependent on regular injections of investor money, which is becoming increasingly hard to come by. Some have been forced to make half their staff redundant in swinging waves of cost-cutting but many in the sector see the reported losses as the tip of the iceberg as developments in the US play out in Australia, albeit with a delay.

But Meta also faces TikTok, owned by Chinese firm ByteDance, and its feed of autoplaying videos.

The app has lured users and creators away from Meta’s Instagram, which has previously announced trial design changes such as more autoplaying, full-screen videos in an effort to ape TikTok. On June 30 Instagram head Adam Mosseri announced a creator marketplace that will let influencers find brands to sponsor their posts, and he extended the period in which Meta does not take any fees from creators.

“Branded content is a multibillion-dollar industry on Instagram,” Mosseri said.

Instagram will also allow users to enable a setting that automatically posts Reels, its name for short form videos, uploaded on its service to be re-posted to Facebook. The amount of time users are spending on Reels is doubling year over year with much of the recent growth coming from Facebook.

The social media and technology company is bracing for a leaner second half of the year, as it copes with macroeconomic pressures and data privacy hits to its ads business, according to an internal memo seen by Reuters on Thursday.

The company must “prioritise more ruthlessly” and “operate leaner, meaner, better executing teams,” chief product officer Chris Cox wrote in the memo, which was released around the same time as Zuckerberg’s comments.

“I have to underscore that we are in serious times here and the headwinds are fierce. We need to execute flawlessly in an environment of slower growth, where teams should not expect vast influxes of new engineers and budgets,” Cox wrote.

A spokeswoman for the company downplayed the note. “This was simply an internal strategy memo intended to build on what we’ve already said publicly in earnings about the challenges we face and the opportunities we have, where we’re putting more of our energy toward addressing,” the spokeswoman said in a statement.

Tech companies have scaled back their ambitions in anticipation of a possible US recession, although the slide in stock price at Meta has been more severe than at competitors Apple and Google. The world’s biggest social media company has lost about half its market value this year, after Meta reported daily active users on its flagship Facebook app had experienced a quarterly decline for the first time.

In his memo, Cox said Meta would need to increase fivefold the number of graphic processing units (GPUs) in its data centres by the end of the year to support the “discovery” push, which requires extra computing power for artificial intelligence to surface popular posts from across Facebook and Instagram in users’ feeds.

That user engagement with Reels could provide a key route to bolster the bottom line, making it important to boost ads in Reels “as quickly as possible,” he added.

Zuckerberg told investors in April that executives viewed Reels as “a major part of the discovery engine vision” that would increase revenue gradually as advertisers became more comfortable with the format.

With Reuters

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