In an open letter to Mark Zuckerberg, Brad Gerstner, CEO and chair of Altimeter Capital, has offered a three-step plan to double the company’s free cash flow to $63 billion per year.
However, that plan involves some radical changes to Meta’s current strategy — including cutting investment in the metaverse, Zuck’s pet project for the future of the internet, to “no more than” $8 billion per year.
Alongside big cuts to spending on the metaverse, Gerstner also recommends cutting Meta’s headcount by “at least” 20 per cent and reducing the annual capex by “at least” $8 billion.
“So, its [sic] with some hesitation, but significant conviction, I am sharing an open letter strongly encouraging Meta to streamline and focus its path forward,” wrote Gerstner.
“Like many other companies in a zero rate world — Meta has drifted into the land of excess — too many people, too many ideas, too little urgency. This lack of focus and fitness is obscured when growth is easy but deadly when growth slows and technology changes.”
Meta’s Q3 earnings are due to be released at 8 AM AEDT and investors are becoming sceptical about the earning potential of the internet and social media giants. Snap, the parent company of photo-sharing app Snapchat, released a set of earnings figures last week that were massively underwhelming — the company’s losses spiralled by 400% despite laying off one-fifth of its headcount over the previous 12 months.
Many analysts are suggesting that Snap, rather than being an aberration, represents is the canary in the internet’s coalmine for advertising-based businesses.
Cutting headcount seems to be the first port of call for investors and analysts suggesting fixes for the tech giants. Elon Musk, for example, has told investors that he would make 75 per cent of Twitter’s staff redundant. Gerstner, meanwhile would not be quite so radical with Meta.
“We do not take job reductions lightly,” he wrote.
“These are not numbers on a spreadsheet. They are people with families and kids to support.”
Despite that, Gerstner recommends that Zuck cut 20 per cent of Meta’s staffing levels by 1 January 2023.
“Why 20%? To put that in perspective, it merely takes the company back to mid-2021 levels of employee expense — and I don’t think anybody would argue that Meta wasn’t sufficiently staffed in 2021 to tackle a business that looks similar to how it looks today.”
Aside from cutting jobs, Gerstner’s recommendation that Zuck cut investment in the metaverse also seems to reflect the broad consensus of tech investors.
“People are confused by what the metaverse even means,” he wrote.
“If the company were investing $1–2B per year into this project, then that confusion might not even be a problem. You would simply do R&D quietly and investors would focus on the core business and the breakthroughs in AI.”
Meta, however, has announced investments of between $10-15 billion US per year into the ten-year metaverse project. According to Gerstner, an investment of that size in an unknown future is “super-sized and terrifying, even by Silicon Valley standards.”
By contrast, rather than investing so heavily into virtual reality, Gerstner believes that Meta would be better-placed investing further in artificial intelligence.
“We believe the future lies in AI. In fact, we believe that augmented and artificial intelligence has the potential to drive more economic productivity than the internet itself,” he explained.
He also says that Meta is “incredibly well positioned” to leverage AI, potentially “making Whatsapp more seamless or making content and ads more useful on Instagram, Reels and Facebook.”
However, it seems unlikely that Meta — at least under Zuckerberg’s leadership — will scale-back its investment in the metaverse any time soon. Either way, investors’ judgements on the company’s earnings will likely be swift and brutal come Thursday.
