Meta to cut down on headcount growth after first revenue loss: Mark Zuckerberg

File photo of Meta Platforms Inc. CEO Mark Zuckerberg

Meta CEO Mark Zuckerberg said on July 27 that the company will steadily reduce headcount growth over the next year as it grapples with its first ever revenue drop on the back of a shrinking digital advertising space.

"This is a period that demands more intensity, and I expect us to get more done with fewer resources," Zuckerberg said at the company's earnings conference call.

He mentioned that many teams at Meta are going to shrink so that they can shift energy to other areas and he wanted to give leaders at the company the ability to "decide within their teams where to double down, where to backfill attrition, and where to restructure teams while minimising thrash to the long term initiatives".

That said, Zuckerberg noted that the reported year-over-year headcount growth will still be substantial for the next few quarters since they have hired a lot of people earlier this year, but it should continue to decline over time.

Facebook parent Meta said it added over 5,700 net new hires in Q2, majority of them in technical functions, and ended the quarter with over 83,500 full-time employees, up 32 percent compared to last year.

The company had first stated its intentions to slow its hiring rate in May this year and earlier this month, Zuckerberg had told employees they have cut plans to hire engineers by at least 30 percent this year, warning them to brace for a deep economic downturn, as per a Reuters report.

On July 27, Zuckerberg reiterated that we have likely entered an economic downturn that will have a "broad impact on the digital advertising business".

"It's always hard to predict how deep or how long these cycles will be, but I'd say that the situation seems worse than it did a quarter ago," he said.

Due to this environment, Meta is now focused on making the long-term investments that will position them to be stronger coming out of this downturn, including work on their discovery engine and Reels, their new ads infrastructure, and the metaverse, Zuckerberg said.

"We're also focused on being rigorous about measuring returns and sizing these investments correctly," he said.

Meta is also slowing the investment pace on a number of multi-year projects it had kicked off, especially in the areas of AI infrastructure, business platform, and Reality Labs to accelerate its business based on the revenue growth it had clocked in 2021, Zuckerberg said.

"I still believe these projects are important, but given the more recent revenue trajectory we're seeing, we're slowing the pace of these investments and pushing some expenses that would have come in the next year or two off to a somewhat longer timeline," he said.

A slew of tech companies such as Alphabet, Apple, Microsoft and Snap Inc have taken similar steps to rein in their hiring growth rate in recent months.

This move comes as rising inflation and uncertainty around a looming recession along with other macro environment challenges has resulted in advertisers cutting back their ad spends, thereby impacting the revenue growth of firms dependent on digital advertising such as Meta, Snap and Twitter.

Meta posted its first-ever quarterly revenue decline on July 27, with total revenue falling to $28.8 billion in Q2, down 1 percent from $29.1 billion in the same quarter last year.

Last week, Snap posted its slowest ever quarterly sales growth while Twitter also posted a decline in its Q2 revenues. Earlier this week, Google parent Alphabet also reported the slowest rate of growth since the second quarter of 2020.

Facebook's outgoing chief operating officer Sheryl Sandberg, however, exuded confidence that the digital ad market will continue to grow over the long run and advertisers will go where they get the highest return on investment and ability to drive their business.

"Meta is a company that has shown extraordinary resilience. We have demonstrated time and time again that we are prepared to move quickly and at scale to respond to changes in consumer behavior, the macroeconomic landscape, and the needs of our advertising partners," she said.