A major investor in Facebook-parent Meta Platforms is calling on the company to reduce its investment in the Metaverse as a way to lay off employees and gain investor confidence.
in an open letter To Meta (ticker: Meta) founder and CEO Mark Zuckerberg and the company’s board, Altimeter Capital founder and CEO Brad Gerstner, have laid out an aggressive plan for how Meta can get back on track.
Meta stock is down 62% this year, battered by a combination of increased competition from TikTok, a result from Apple.‘s
(AAPL) strict privacy standards on the browsing habits of iPhone users, slow progress on monetizing Facebook reels, and doubts about the knowledge of the company’s aggressive investment program to build the metaverse.
“Meta has drifted into a land of excess—too many people, too many ideas, too little urgency,” Gerstner writes. “This lack of focus and fitness is obscured when evolution is easy but fatal when development is slow and technology changes.” According to S&P Capital IQ, Altimeter holds 2.5 million meta shares.
Gerstner notes that over the past 18 months, Meta stock is down 55%, compared to 19% for big-tech peers, making Meta’s price-to-earnings ratio less than half that of other big tech companies. has also decreased.
“This fall in share prices reflects confidence in the company and not just the bad mood of the market,” he says. “Meta needs to get its mojo back. Meta needs to rebuild trust with investors, employees, and the tech community to attract, inspire, and retain the world’s best people.”
Gerstner lays out a three-step process he argues will double free cash flow to $40 billion per year, and refocus on the company’s teams and investments.
Their plan: Cut the workforce by at least 20% by January 1, reduce annual capital expenditures by at least $5 billion per year, and cut investments in Metaverse to no more than $5 billion per year, which It is about half the current level.
Gerstner notes that headcount in Meta has more than tripled from 25,000 to 85,000 in the past four years.
“It’s a very poorly kept secret in Silicon Valley, companies involved in [
(GOOGL)] Google to Meta to Twitter (TWTR) to Uber (UBER) could achieve the same level of revenue with far fewer people,” he writes. “I would take it a step further and argue that these incredible companies would run even better and more efficiently without the layers and sloths that come with this extreme rate of employee expansion.”
Tesla (TSLA) CEO Elon Musk, which is in the process of buying Twitter, has reportedly considered cutting employees of that company by up to 75%.
In the letter, Gerstner notes that talent remains in short supply in Silicon Valley, and that laid-off employees will quickly find work at other companies.
As for capital spending, Gerstner points out that Meta’s budget was about $15 billion in 2018, 2019 and 2020, and has more than doubled from there now. Even excluding the metaverse, “Meta is investing more in capex than Apple, Tesla, Twitter, Snap (SNAP) and Uber.” He is of the view that the company “can reign in capex responsibly and appropriately while continuing to invest aggressively in AI and other critical areas.”
As for the Metaverse, Gerstner noted that the company has announced plans to invest $10 billion to $15 billion a year, and “people are confused about what the Metaverse means.”
The planned investment of $100 billion over time is “big and terrifying even by Silicon Valley standards,” he writes. While Gerstner agrees that the company should make some investments in this area, he thinks that $5 billion per year by any normal standard “would seem like an extraordinary amount.”
Meta declined to comment on Gerstner’s letter.
Meta stock is partially down at $129.98.
Eric J. Write Savitz to [email protected]
Credit: www.marketwatch.com /