Sales growth and advertising revenue have taken positive turns, but Meta's pursuit of a leaner, more profitable business model will endure as the tech giant expects to spend an estimated $4 billion on restructuring expenses related to downsizing its real estate footprint.
The Menlo Park, California-based company increased its anticipated expenses for 2023 to close workspaces, pull out of agreements and reduce its headcount as it pursues what CEO Mark Zuckerberg has called its "year of efficiency." Executives at the company told analysts on its earnings call Wednesday that it is lowering its capital expenditure forecast from its initial estimate of up to $35 billion through the rest of the year down to $27 billion as the company looks for ways to redirect capital to investments in artificial intelligence and augmented reality.
"We will keep running the company as lean as possible," Zuckerberg said, adding that its "newly budgeted headcount growth will be relatively low. It has been a tough year in a lot of ways, but impactful, and I'm optimistic about the road ahead."
Meta reported second-quarter revenue of $32 billion, an 11% jump compared to the same period a year ago. That increase is the largest year-over-year growth in revenue since the final quarter of 2021.
Even so, Meta's muted headcount growth expectations and ongoing efforts to consolidate its real estate footprint signals the days of signing blockbuster leases around the world won't be returning anytime soon.
Company executives warned it would continue "to assess facilities consolidation," a foreboding sign for a national office market that is already struggling with record amounts of sublease space and a dwindling pool of tenants willing to take it.
The social media company has so far paid nearly $1.1 billion this year to shrink its office footprint, about $250 million of which was spent through the second quarter.
Meta has been among a pool of other tech giants that posted meteoric rises in revenue, users and advertising spending through the first couple of years of the pandemic but are now contending with a challenging economic outlook that is bringing them back to earth.
The company is in the final stages of laying off 10,000 employees, adding to the 11,000 positions it eliminated late last year. It plans to spend as much as $91 billion through the rest of the year — up from initial estimates ranging between $86 to $90 billion — on expenses related to its restructuring costs, which also include severance and personnel expenses as well as costs related to terminating leases or offloading some of its office space.
Job cuts among companies including Meta, Google parent Alphabet, Amazon, Microsoft and Salesforce have been a worrisome sign for the national commercial real estate market, which has come to rely on massive tech leases and rising headcounts in such major cities as San Francisco, New York, Seattle and Los Angeles for rent growth.
While Meta has significantly reduced its real estate portfolio, a potential bright spot for its role in the national office market could be its mounting efforts to get people back to working from physical office locations. The company told employees in June it would require those assigned to a physical workspace to come in for a minimum of three days a week, a mandate expected to take effect in September.
"In-person time helps build relationships and gets more done," Zuckerberg recently said. "We’re committed to distributed work. That means we’re also committed to continuously refining our model to make this work as effectively as possible."