The WSJ reports that headcount cuts are coming to META, perhaps on Wednesday of this week.
META’s R&D expense grew by 45% y-o-y in the September quarter even as Revenue declined by almost 5%. G&A grew by 15% and Sales & Marketing grew by 6%. Given that R&D now represents 33% of Revenue (as compared to 22% a year ago), one would logically look to R&D to right-size META’s cost structure. However, where Zuckerberg is hell bent on his metaverse initiative, our view is that he will instruct his staff to first focus elsewhere to execute META’s headcount reduction. Thus, G&A, sales support and Ad sales staff will likely see cuts first.
Eventually, META will have to trim expenses on the R&D/Product-side. Therefore, product managers and developers/engineers/architects focused on Facebook, Instagram and WhatsApp will see cuts, particularly those deployed on what Zuckerberg and his team view as non-core product elements. META is publicly pivoting its business model and is operating as if it were a venture portfolio company.
There is no reason why total R&D expense should exceed 20% of Revenue at META, with most of those resources deployed on the metaverse initiative. To get to 20%, META would need to halt new product features related to the Facebook, Instagram and WhatsApp product roadmaps. Technical staff deployed on those three platforms would primarily be focused on general product maintenance and security. Those three primary products would cease to be growth platforms. That’s the required discipline.