Big Tech declared 2023 to be a year of cost cutting, bringing mass layoffs. Now,
Meta
Platforms looks to be the first major technology company to resume significant hiring, largely related to artificial intelligence.
Investors could take new spending on AI as a sign of confidence in the economy and the potential benefits of the technology. However, it could also bring concerns about profits, especially if investments take a long time to pay off in a fiercely competitive environment where all the big technology companies are spending in the hope of becoming the AI leader.
Meta
has been among the best performing stocks in the tech sector over the past 12 months, as the market cheered higher profit margins.
A rise in headcount could risk eating into the margins that have cheered Meta investors. Meta’s operating margin for the December quarter was 41%, compared with 20% for the same period a year earlier. While rising revenue was the main factor, an 8% fall in costs and expenses was also a significant contributor to that change.
Any resurgence in hiring could bring back doubts over whether CEO Mark Zuckerberg can curb his instincts to hire his way to technological dominance. Meta was criticized in late 2022 by activist investor Altimeter Capital for having a bloated headcount. The activist also called for a cap on the company’s metaverse investment. For now, Zuckerberg has doubled down on his conviction that the metaverse will pay off, although the company is now more closely focused on AI projects such as digital assistants, which Zuckerberg thinks will eventually contribute to his vision of virtual reality.
Data from interviewing.io show Meta on a hiring spree even as Google-parent
Alphabet,
Microsoft,
Apple
and
Amazon.com
keep headcount flat. (The website, used by job seekers preparing for technical engineering interviews, can give a sense of upcoming recruitment drives.)
“Meta’s hiring volume is clearly outpacing all the other FAANGs … for all intents and purposes they’re the only FAANG that’s really hiring at scale,” Aline Lerner, chief executive of interviewing.io. told Barron’s.
On its last earnings call, Meta executives said the company ended the fourth quarter with over 67,300 employees. That was down 22% from the same period a year earlier, but up 2% from the end of the third quarter. The company has previously said it will likely end 2024 with a “meaningfully higher” headcount than it had in late 2023.
“We still need to hire some of the other talent profiles that we swapped people out for, and that will be ongoing through this year,” Zuckerberg told analysts on the company’s fourth-quarter earnings call. “But in terms of new headcount that we added to the plan, it’s relatively minimal compared to what we would have done historically.”
Meta’s hiring challenge is beating rivals in attracting talent that can build an artificial general intelligence, or AGI, which could potentially surpass human intelligence in a range of fields. Zuckerberg has said Meta is in a race against multiple companies, including Microsoft-backed OpenAI, Alphabet, and Elon Musk’s xAI.
OpenAI has a lead in depth of talent due to its long history in AI development. Alphabet looks to still be focusing on creating the financial capacity for AI investment, having recently announced layoffs. While precise numbers aren’t available, the Alphabet Workers Union has said that more than 1,000 Google employees were laid off. Meanwhile, Musk’s xAI seems to still be in a lean start-up phase with around 20 employees, according to a recent Bloomberg report that cites a fundraising presentation.
Meta’s hiring numbers might be smaller than in the past but those hires might be more costly on an individual basis due to competition for AI talent. Compensation data provided by platform Comprehensive.io, show Meta raising salaries for software engineers at a faster rate than rivals.
Meta’s average advertised salary for engineering jobs late last year was $195,659, up 3.0% compared with earlier in the year. That was faster than Amazon and Google which raised their average advertised salary by 2.7% and 2.0% respectively, while Microsoft’s average advertised salary fell 3.2%. Meta’s average advertised salary was the second highest behind Google’s.
Meta has guided for an increase in operating expenses of about 14% this year, largely due to its increasing headcount, according to Mizuho Securities analyst James Lee. However, it won’t necessarily follow through on that, according to Lee, who noted that the company has typically lowered its operating expense guidance throughout the year.
Lee has a $575 target price on Meta stock, roughly 20% above Meta’s recent $486.
The contrast between Meta’s apparent hiring and its peers’ layoffs has sharpened so far this year. Amazon’s live streaming platform Twitch said in a recent blog post that more than 500 roles would be eliminated. That’s on top of several hundred cuts in the Prime Video and Amazon MGM Studios divisions, according to an email seen by Barron’s.
Microsoft said in January that it would let go of 1,900 employees in its videogaming operations. The company disclosed in its recent earnings report that headcount at the end of the December quarter was down about 2% from a year earlier.
While Big Tech layoffs are still happening, the foundations are being laid for the next major phase of investment in AI. Over the long-term, investors will have to weigh two factors: the cost of bringing AI to market versus the profit boost that AI productivity could eventually bring.
Write to Adam Clark at [email protected]
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