Meta shareholder writes open letter to Zuckerberg; asks to slash jobs, investment

Meta investor and Altimeter Capital’s chair and CEO Brad Gerstner wrote an open letter to Meta CEO Mark Zuckerberg on Monday, October 24, recommending a plan to get the company’s “mojo back.”

In the letter, Gerstner says, “Meta has drifted into the land of excess — too many people, too many ideas, too little urgency.” He also says Meta is moving too slowly to retain investors confidence. 

Three-step plan

Brad Gerstner recommended a three-step plan to double FCF (Free Cash Flow) to $40B annually and regain its mojo. They are”

• Reduce headcount expense by at least 20 per cent
• Reduce annual capex by at least $5B from $30B to $25B
• Limit investment in metaverse / Reality Labs to no more than $5B per year

“Meta needs to rebuild confidence with investors, employees, and the tech community to attract, inspire, and retain the best people in the world. In short, Meta needs to get fit and focused,” he says. 

He said a 20 per cent cut in employee spending would take Meta back to the mid-2021 levels of employee expense. 

“I don’t think anybody would argue that Meta wasn’t sufficiently staffed in 2021 to tackle a business that looks similar to how it looks today,” he adds.

Meta’s performance

Gerstner also highlighted Meta’s recent performance. In the last 18 months, Meta stock is down 55 per cent (compared to an average of 19% for its big-tech peers).

Meta’s P/E ratio has fallen from 23x to 12x and now trades at less than half the average P/E of its peers. He also highlighted that Meta’s employees increased over 3x from 25k to 85k in the last four years!

However, Meta’s core business witnessed over $45B in operating profits last year alone.

“It is a poorly kept secret in Silicon Valley that companies ranging from Google to Meta to Twitter to Uber could achieve similar revenue levels with fewer people. I would take it a step further and argue that these incredible companies would run even better and more efficiently without the layers and lethargy that comes with this extreme rate of employee expansion,” he writes in the letter. 

Limit annual capex

Gerstner also suggested Meta decrease capex by at least $5B. Meta dramatically increased its capital expenses from $15B in annual capex in 2018, 2019, and 2020 to $30B in annual capex in 2022. 

He emphasised that Meta is investing more in capex than Apple, Tesla, Twitter, Snap, and Uber combined. 

“Some companies require tremendous capex investment to maintain their existing business. Our best guess is that maintenance capex for Meta is less than $10B annually. The vast majority of the capex has been an essential and high-return investment in data centres, Nvidia GPUs, and other AI resources to solidify the company’s position as one of the world’s leaders in AI,” he says. 

Cap metaverse investments

Gerstner also suggested Meta cap its metaverse investments to at most $5B per year with more discrete targets and measures of success instead of an open-ended strategy. 

He says, “People are confused by what the metaverse even means. If the company invested $1–2B per year into this project, then that confusion might not even be a problem.”

“Instead, the company has announced investments of $10–15B per year into a metaverse project that largely includes AR / VR / immersive 3D / Horizon World and that it may take ten years to yield results. An estimated $100B+ investment in an unknown future is super-sized and terrifying, even by Silicon Valley standards,” he notes. 

“There is no doubt that doubling annual FCF will improve share price. And, while that ultimately is an important long-term measure of success for all of Meta’s stakeholders, it would be imprudent to make short-term bad decisions to improve the share price. But far from being a bad decision, we think the recommendations outlined above will lead to a leaner, more productive, and more focused company — a company that regains its confidence and momentum,” he concludes.

A few days back, UK’s Competition and Markets Authority (CMA) ordered Meta, the parent company of Facebook, to sell the GIF platform Giphy after a tribunal upheld its view that the acquisition could limit choice for UK social media users and reduce innovation in UK display advertising.