#SocialStocks: Meta to Axe Additional 10,000 Roles in new Restructuring Plans

Meta and ByteDance employees aware of harm to teenagers, TikTok may need to be divested, and other notable stories from this week

Welcome to “#SocialStocks,” The Fly’s weekly recap of Wall Street’s reactions to social media stock news.

MORE LAYOFFS: 

Meta Platforms (META) CEO Mark Zuckerberg told employees on Tuesday: “Over the next couple of months, org leaders will announce restructuring plans focused on flattening our orgs, canceling lower priority projects, and reducing our hiring rates. With less hiring, I’ve made the difficult decision to further reduce the size of our recruiting team. Recruiting leaders will let team members know tomorrow whether they’re impacted. We expect to announce restructurings and layoffs in our tech groups in late April, and then our business groups in late May. In a small number of cases, it may take through the end of the year to complete these changes. Our timelines for international teams will also look different, and local leaders will follow up with more details. Overall, we expect to reduce our team size by around 10,000 people and to close around 5,000 additional open roles that we haven’t yet hired. After restructuring, we plan to lift hiring and transfer freezes in each group. Other relevant efficiency timelines include targeting this summer to complete our analysis from our hybrid work year of learning so we can further refine our distributed work model. We also aim to have a steady stream of developer productivity enhancements and process improvements throughout the year. As I’ve talked about efficiency this year, I’ve said that part of our work will involve removing jobs – and that will be in service of both building a leaner, more technical company and improving our business performance to enable our long term vision.”

Oppenheimer raised the firm’s price target on Meta Platforms and kept an Outperform rating on the shares after the company announced another round of layoffs, impacting 10,000 employees, or an additional 14% reduction. The analyst increased both fiscal 2023 and 2024 EBITDA estimates by 12% and 2023 and 2024 earnings estimates excluding one time items by 22% and 24%, respectively.

DATA LAW VIOLATION: 

Meta’s Facebook Ireland violated the law when processing personal data of Dutch Facebook users in the period from April 1, 2010 to January 1, 2020, the court of Amsterdam ruled. Personal data was used to advertisers and given to third parties without Facebook users being properly informed about this and without a basis in legislation and regulations, the court said.

CONTENT CONTROLS: 

In a Tuesday post, Snap (SNAP) said, “Last year, we introduced Family Center on Snapchat to offer parents a way to gain insight into who their teens are communicating with on Snapchat and in a way that still protects their teens’ privacy. We also shared plans to add additional tools over time to help parents customize their teens’ individual experiences and needs. Today, we are pleased to roll out our latest feature for Family Center, Content Controls, which allow parents to limit the type of content their teens can watch on Snapchat. Snapchat was designed to be different from traditional social media platforms, and this extends to the way people consume content. There are two parts of our app where content can potentially reach a large audience: Stories is our content platform, where content creators, Snap Stars, and more than 900 media partners, such as NBC News, Axios, ESPN, Le Monde and People, provide trusted news, entertainment, sports and other genres. Stories is not an open platform – and creators and partners must abide by our content editorial guidelines. Spotlight is our entertainment platform, where Snapchatters can watch fun and creative content created by members of our community. On Spotlight, any content Snapchatters submit must comply with our Community Guidelines…Our new Content Controls in Family Center will allow parents to filter out Stories from publishers or creators that may have been identified as sensitive or suggestive. To enable Content Controls, parents will need to have an existing Family Center set up with their teen.”

PINTERESTED: 

Cathie Wood’s ARK Investment bought 23.3K shares of Pinterest (PINS) yesterday. This came after ARK Investment bought 133.8K shares of Pinterest on Monday.

NO MORE NFTS: 

The head of Commerce and Financial Technologies at Meta, Stephane Kasriel, tweeted: “Some product news: across the company, we’re looking closely at what we prioritize to increase our focus. We’re winding down digital collectibles or NFTs, for now to focus on other ways to support creators, people, and businesses. Let me be clear: creating opportunities for creators and businesses to connect with their fans and monetize remains a priority, and we’re going to focus on areas where we can make impact at scale, such as messaging and monetization opps for Reels. And we’ll continue investing in fintech tools that people and businesses will need for the future. We’re streamlining payments w/ Meta Pay, making checkout & payouts easier, and investing in messaging payments across Meta.”

CEO Mark Zuckerberg said: “A leaner org will execute its highest priorities faster. People will be more productive, and their work will be more fun and fulfilling. We will become an even greater magnet for the most talented people. That’s why in our Year of Efficiency, we are focused on canceling projects that are duplicative or lower priority and making every organization as lean as possible.”

YES HARM YES FOUL: 

According to claims in a court filing, workers at Meta and TikTok parent ByteDance were aware of the harmful impacts of their platforms on young children and teenagers but ignored the information or in some cases aimed to undermine it, Bloomberg’s Joel Rosenblatt reported. The claims were disclosed in a lawsuit over social media addiction that had been previously filed but with certain portions sealed from the public, the author notes. Additionally, an unredacted version of the filing offers details about how much engineers and others, including Meta founder and CEO Mark Zuckerberg, were aware of the harms of social media, the author says.

SEEKING CUSTOMER FOR KUSTOMER: 

Meta is exploring alternatives for Kustomer, which it acquired last year for about $1B, The Wall Street Journal’s Jeff Horwitz and Juliet Chung reported. According to people familiar with a planned deal, Kustomer’s revenue flattened while burning through roughly $200M since 2022’s deal close. “In light of Meta’s efficiency efforts, we’ve made the decision to focus on our fastest growing business messaging offerings, including the monetization opportunity for WhatsApp,” said Ryan Moore, a spokesman for Meta. “We are currently exploring strategic alternatives for Kustomer and will continue to support Kustomer’s product and customer base throughout this process.”

NEW SOCIAL NETWORK: 

Meta is exploring a decentralized social network for sharing text updates, Platformer’s Casey Newton reported. According to Newton, the app will let users log in with Instagram and is codenamed P92. “We believe there’s an opportunity for a separate space where creators and public figures can share timely updates about their interests,” the company told Platformer in an email.

REELING: 

Meta is “pausing” its Reels Play bonus program, one of the key initiatives that helped Reels creators on Facebook and Instagram get paid, Insider’s Sydney Bradley reported. The program was introduced in December 2021 and offered creators monthly payouts if they hit certain view counts and other metrics. According to a statement provided to Insider, Meta is “evolving” the program and will “stop extending new and renewed Reels Play deals for creators on Facebook and for U.S. creators on Instagram at this time.”

Citi raised the firm’s price target on Meta Platforms and kept a Buy rating on the shares. The analyst’s updated tracking of Reels monetization suggests ad loads continue to rise with Reels quarter-to-date ad load reaching 16.2% versus 14.4% in Q4. Reels engagement continues to rise as entertainment and discovery become a larger part of the overall experience at Facebook and Instagram, led by Meta’s artificial intelligence content discovery engine, the analyst tells investors in a research note. While monetization continues to ramp, Citi projects Reels revenue can reach $6.4B-plus in 2023. It raised Meta’s price target citing improving engagement, newer ad products and “now an increasingly lean organization.”

OVERSIGHT BOARD RULING: 

The Oversight Board has upheld Meta’s decision to leave up a Facebook post asking for donations of pharmaceutical drugs to Sri Lanka during the country’s financial crisis. However, the Board has found that secret, discretionary policy exemptions are incompatible with Meta’s human rights responsibilities, and has made recommendations to increase transparency and consistency around the “spirit of the policy” allowance. This allowance permits content where a strict reading of a policy produces an outcome that is at odds with that policy’s intent, the Oversight Board said. The Oversight Board finds that the post violates the Restricted Goods and Services Community Standard. However, it finds that applying a scaled “spirit of the policy” allowance to permit this and similar content was appropriate, and in line with Meta’s values and human rights responsibilities.

Also. Meta’s Oversight Board has agreed to review a case related to Meta’s handling of election content in Brazil. In a statement, the board said they planned to scrutinize the social network’s policies surrounding election content in “high-risk” areas. The case stems from a user who posted a video in early January calling for people to “besiege” Brazil’s congress following the election of President Lula da Silva. The Oversight Board said: “The Board selected this case to explore Meta’s policies and practices in moderating content that targets people based on a protected characteristic, such as sex and gender. This case falls within the Board’s “Gender” and “Hate speech against marginalized groups” strategic priorities.”

ANALYST COMMENTARY: 

UBS reiterated its Buy rating and continues to view Meta Platforms shares as a “Top Pick” as it estimates that $3B in reduced opex, plus $3B of higher restructuring charges, points to a $6B “core opex” reduction for 2023, annualizing to about $8B of opex savings in 2024. This amounts to almost $2.50 per share in tax-affected EPS on top of the firm’s “above-consensus” $13.00 forecast for GAAP EPS in FY24, said UBS.

Mizuho reaffirmed a Buy rating on Meta Platforms after several news outlets indicated the company could initiate another round of layoffs at a similar scale to the last round at 13% of employees. The firm applauded the company’s efforts to drive further efficiency during economic uncertainty. The firm estimates total savings of $1.1B for fiscal 2023 could come from headcount reduction as well as potential cost savings of $1.1B from discontinued products and projects in Metaverse and New Product Experiment Groups. Mizuho sees further shares catalysts for Meta if the reported restructuring gets executed along with spending savings from discontinued products.

Among various TikTok policy measures being proposed, the RESTRICT Act sponsored by Senators Warner and Thune would classify TikTok as a threat and give the President the authority to ban the app, while two other proposed bills would direct him to do so, Piper Sandler noted. The firm’s U.S. Macro Policy team’s base case assumes Congressional support for the RESTRICT Act and passage this year, which could result in an order for ByteDance to divest TikTok, the firm told investors. In an outright ban scenario, there’s the opportunity for a redistribution of Tiktok’s estimated 100M U.S. MAU’s, but should the RESTRICT Act move forward, the policy team sees a forced divestiture as more likely than an outright ban, said Piper, which adds that it thinks an ownership change would have a “negligible value implication” for social peers Meta, Snap and Alphabet’s (GOOG) Youtube. However, a ban would have “significant peer implications” given TikTok’s reach, estimated at 1B users globally and 100M in the U.S., the firm added.

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Originally Posted March 15, 2023 – #SocialStocks: Meta to axe additional 10,000 roles in new restructuring plans