Things are going from bad to worse for Meta Platforms (NASDAQ: META).
The Facebook parent is coming off the slowest growth in its history, with revenue up just 7% in the first quarter, and the company said that growth will be even slower in the second quarter.
Meta is facing a swirl of challenges, including Apple’s crackdown on ad targeting, the rise of TikTok, tightening privacy laws in Europe, headwinds in digital advertising, and a questionable rebrand to prioritize its metaverse business, Reality Labs, which is currently a giant money pit.
Now Facebook’s problems are hitting home.
According to Reuters, CEO Mark Zuckerberg issued a warning to employees in a weekly Q&A session, saying, “If I had to bet, I’d say that this might be one of the worst downturns that we’ve seen in recent history.”
Among the changes the company is making to adjust to the slowdown is a cut in its hiring plans. Meta now expects to add just 6,000 to 7,000 engineers this year, down from a previous target of 10,000.
Zuckerberg also promised to raise performance expectations for current employees, in part to weed out weaker employees. He told his staff, “Part of my hope by raising expectations and having more aggressive goals, and just kind of turning up the heat a little bit, is that I think some of you might decide that this place isn’t for you, and that self-selection is OK with me.”
Chief Product Officer Chris Cox echoed that urgency, saying, “We need to execute flawlessly in an environment of slower growth” and that the company must “prioritize more ruthlessly.”
What it means for Meta investors
The Facebook parent is no stranger to controversy, having previously navigated the Cambridge Analytica scandal and general criticism over the negative influence of social media. It’s also overcome business obstacles like the transition to mobile.
However, something feels different about the current moment. Arguably, Meta has never had to defend itself on so many fronts at once, and its slowing growth makes the company look more vulnerable than ever before. The combination of privacy challenges from both Apple and the EU, TikTok’s rise to social media prominence, macro-level challenges, and a confusing rebrand seem to have thrown the company off course.
Previously, when critics raised doubts about the company’s future, Facebook answered them with blockbuster growth and mountains of profits, but with revenue growth slowing to single digits and the company warning again about future growth, the business looks less reliable than it used to.
Zuckerberg’s call to arms also brings up questions about Facebook’s internal culture. While high performance expectations aren’t unusual among the world’s foremost tech companies, Facebook’s reputation as a top workplace has also taken a hit in recent years. The company was once ranked No. 1 on Glassdoor’s list of best places to work, but it has since fallen all the way to No. 47.
The news of hiring slowdowns and stricter employee demand is unlikely to help it attract the best engineers.
Is it time to sell Meta stock?
The good news for investors here seems to be that these concerns are already priced into the stock. Meta shares are down nearly 60% from their peak last September, considerably more than peers like Alphabet, Amazon, and Apple in the tech sell-off.
Investors seem to be skeptical of the company’s pivot to the metaverse, which is costing it more than $10 billion a year, and it’s unclear if Meta revenue growth will bounce back to prior levels.
Still, Facebook’s core attributes remain strong. The company has roughly 3 billion users across its platforms and is one of the world’s strongest advertising businesses. Considering those strengths and the company’s forward price-to-earnings ratio of just 13, selling the stock with so much bad news priced in seems like the wrong move here.
However, Zuckerberg’s latest warning should be sobering for anyone hoping for a quick turnaround.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Jeremy Bowman has positions in Amazon and Meta Platforms, Inc. The Motley Fool has positions in and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, and Meta Platforms, Inc. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.
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