Meta Layoffs, Earnings Call And Cables In the Ocean

Ahoy Metamates! 🚢 🏴‍☠️

And welcome to this weeks’ issue of That’s So Meta. This newsletter looks at hard data, Wall Street analyst opinions, interviews with employees and industry competitive data.

No hype, just facts.

A bit about me:

• I’ve negotiated 17 D1-VP offers at Meta

• My company, Candor, has helped over 50 people become Meta PMs

• I help Meta employees think about their RSUs every day

• Prior life: led quants and strats for a $50B book of business at a private bank

Back to our regularly scheduled content. In this issue:

💀 Layoffs Are Coming

📉 Which Wall Street Analysts are Sinking your RSUs and Why

💸 Earnings call breakdown with stock valuation data

🐬 Why in the world Meta is running Cables Under the Ocean???

Why Are Layoffs Happening?

Morgan Stanley wrote an 18 page report on Meta that will lead to a reported 10k layoffs. Happy Holidays, I guess?

In truth, this was coming anyway. But it will now hit hard and fast.

I looked at public data from layoffs lists at Stripe and Lyft where layoffs looked like this:

• Operations and junior roles - 40%

• Software engineers - 20%

• Recruiters - 10%

• Data science and data analytics - 10%

Will this be the case for Meta? Not necessarily.

The original plan: do what Google is doing. Basically, manage people out deliberately through aggressive performance reviews.

Then last quarter: Some folks were told to find a new team by September or take severance. You didn’t hear about these departures because those who wanted severance had to sign a non-disparage to get their money.

Then Wall Street analysts hit ⏩ fast forward:

So this week will likely go something like this:

• Meta is has to use a formula to do a RIF to avoid disparate impact mishaps

• This implies folks will be cut based on performance review scores last cycle

• Teams who already made headcount goal will be left alone

+ a pound of flesh for Wall Street, which will come in the form of deeper cuts across orgs analysts are dunking on like Blue and FRL

There will be more layoffs after this

Meta headcount grew 22% over the last year (SEC data). So, a 10% cut only brings Meta back to ‘21 levels. This is not enough to offset AI investment, FX headwinds and of course - the Metaverse.

The only question is whether it will happen fast or slow.

We have to wait for the market to react next quarter to know for sure.

Metrics to watch:

• Hiring is down 90% since May 2022 (LinkedIn data)

• Most over-hired roles in the last year - software eng, PM (LinkedIn data)

This chart shows hiring by function.

Side note: Meta appears to have frozen non critical hires in areas Marketing (open reqs down 74%). And even though PM and Eng are highest for filled roles, hiring velocity has declined significantly. PM down 60%, eng down 39%.

WTF Happened After The Earnings Call?!

If you’re salty about your Meta RSUs - you should know why they’re sinking so fast.

Stock prices are influenced by the holy trinity principle of markets: supply, demand and analyst opinion.

And boy does Morgan Stanley hate Meta right now.

On the eve the earnings call, they published what can only be described as a bloodbath of a narrative. Every other analyst latched on. If you thought VCs are sheep, you haven't met Wall Street bros. They don't wear even Patagonia, they wear Cotopaxi.

• MS price target cut by ~50% (from $205 to $100)

• Rating moved from Overweight to Equal Weight

This drastic cut and the timing of the report are both unusual 🤨. Even the grand-pappi of Meta stock analysis, Eric Sheridan @ Goldman is at $165.

This has NOTHING to do with the Metaverse

I know, I’m surprised too 😳😳😳. The cut in stock price projections this quarter actually stem from an unexpectedly high spend on AI Infra.

Frankly, this crept up on analysts and it’s the straw that broke the camel’s back.

Metrics to watch:

• $7.7B on capital expenditure in Q2, driven by AI and data infra

• Total expenses up 22% YoY

• Meta says it needs 5x its fleet of datacenter GPUs to compete against TikTok

Another big long bet was not what anyone wanted to hear.

Especially in the face of MSFT announcing it intends to cut costs by extending the useful life of some of its datacenter equipment by 2 years.

Stock Price Confusion Is Real

Let’s level set:

• 58 analysts cover Meta, majority rate it a BUY

• Stock is -72.7% over a 12 month period (1 mo return -36%)

It’s dragging under the S&P 500:

For comparison, here’s MSFT:

Analysts are very split on Meta right now for their 12 month projection:

• Morgan Stanley is most bearish @ $105

• Consensus is $207.41

• High estimates are $392

That’s quite a spread. (source: MS data from October 22 )

Let’s look at this a bit more closely between all analysts:

And here’s how it breaks down by rating:

But they're not really following their own advice...

Two Sigma and Citadel Are The Winners

You may think the sell-off panic is only affecting Meta employees with RSUs - you’re wrong. 7 of the top 8 shareholders in Meta, which traditionally have very low turnover made some big moves to sell off recently.

Who’s buying on the flip side?

Here’s the activity of the biggest moves based on public filings. You’ll notice Morgan Stanley on the right.

Let’s also look at the derivatives market. Looks like most movement is around writing calls.

Who is the most prolific user of options?

Hedge funds account for 55% of the options trading in the US.

Why?

It’s interesting that the ratio of puts to calls on the market right now is nearly equal.

I would speculate fund managers are getting high on their own supply right now dabbling in straddles.

This would also explain why Citadel and Two Sigma are buying up Meta positions right now. There’s a lot of money to be made on Meta volatility.

Just not for employees. Employees are mostly not allowed to use derivatives.

TLDR: If you want to know what to do with your RSUs based on all this information, you can find me at my day job.

OK, OK- enough market talk. I know I almost lost you there.

 🍧 Time for a palate cleanser.

2000 Leagues Under The Sea

Did you know Meta owns 6% of all submarine cables in the world? Or, maybe - do you know what a submarine cable is?

Neither did I. Turns out it’s pretty important.

This is some next level Jules Verne type sh*t.

And apparently they’re a massive security issue. Maps of these cables have to be made publicly available to avoid shipping vessels damaging them by accident. However, that also makes them a target for foreign government infiltration.

Meta has majorly ramped up their ownership and has ambitions to own 13% of all the world network.

Why is Mark moonlighting as Poseidon? 🧜 The metaverse.

Interesting fact: Intel doesn't think Meta's investment to 10x capacity is enough

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💌 Next few issues subscribers will read deep dives on topics like :

• Is WhatsApp poised to become Taobao? A breakdown of commerce bets

• Meta loves India. And there's a reason you haven't heard about it

• AI bets to keep an eye on. Explained in plain English

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