Meta spent billions to close offices and lay people off. Now we know why.

Peter Kafka

February 2, 2024 7:59 AM

Remember when investors were worried that Mark Zuckerberg was incinerating money on the Metaverse and virtual reality?

Mark Zuckerberg is smiling: Meta's profit margins are much improved — and that's partly because of a shrinking head count.Josh Edelson/AFP/Getty Images ; Isabel Fernandez-Pujol/ BI

Meta lost an astonishing $16 billion on the Metaverse last year.
But Wall Street loves Meta late Thursday: Its stock is up another 12%.
One big reason: Even with the Metaverse losses, Meta's margins are way, way better.

Well, that's still happening: Last year, Meta lost $16.1 billion on its "Reality Labs" division, the group that brings you things like the Oculus goggles. That's up from a loss of $13.7 billion in 2022.

Those losses are accelerating, too: In the last quarter of 2023, Meta lost $4.6 billion on the Metaverse.

There's more to come, Zuckerberg is promising investors: "For Reality Labs, we expect operating losses to increase meaningfully year-over-year due to our ongoing product development efforts in augmented reality/virtual reality and our investments to further scale our ecosystem," Meta said in its most recent earnings release.

But this time around, investors seem totally cool with Zuckerberg's Metaverse investments. Meta's stock, which was already at an all-time high, has shot up some 12% on the news.

What gives?

Here's an easy answer: For starters, Meta says it is going to continue to buy back its stock — something Wall Street always loves — and, for the first time in its history, it's going to start rewarding shareholders with a dividend.

But the bigger picture is that Meta has spent the last couple of years pushing people out the door, getting out of leases, etc. And that has improved the company's bottom line — even while Meta is bleeding red ink on the future.

Last year, Meta spent $3.5 billion shrinking itself. $2.5 billion of that came from "facilities consolidation" — closing and combining offices — and another $1 billion on "severance and other personnel costs" — that is, firing people. The company is now operating with 67,300 employees, a staggering 22% decrease over the last year.

And all of that means that Meta's profit margins are way, way better: While its revenues increased by 16% (a number most Big Tech companies would be very happy with these days), its operating income increased by 62%, and its profits increased by 69%.

And while Zuckerberg and other Big Tech leaders have said they've been cutting to make their companies more efficient and more dynamic, those bottom-line results are very much the point: They want to show Wall Street that they can still increase profits — even if their go-go growth days are behind them, and even if they're still plowing money into new stuff.

This article was originally published on Business Insider.

Peter Kafka