How the industry lost $7.4 trillion in one year

Pedestrians walk past the NASDAQ MarketSite in New York’s Times Square.

Eric Thayer | Reuters

It seems like an eternity ago, but it’s just been a year.

At this time in 2021, the Nasdaq Composite had just peaked, doubling since the early days of the pandemic. Rivian’s blockbuster IPO was the latest in a record year for new issues. Hiring was booming and tech employees were frolicking in the high value of their stock options.

Twelve months later, the landscape is markedly different.

Not one of the 15 most valuable U.S. tech companies has generated positive returns in 2021. Microsoft has shed roughly $700 billion in market cap. Meta’s market cap has contracted by over 70% from its highs, wiping out over $600 billion in value this year.

In total, investors have lost roughly $7.4 trillion, based on the 12-month drop in the Nasdaq.

Interest rate hikes have choked off access to easy capital, and soaring inflation has made all those companies promising future profit a lot less valuable today. Cloud stocks have cratered alongside crypto.

There’s plenty of pain to go around. Companies across the industry are cutting costs, freezing new hires, and laying off staff. Employees who joined those hyped pre-IPO companies and took much of their compensation in the form of stock options are now deep underwater and can only hope for a future rebound.

IPOs this year slowed to a trickle after banner years in 2020 and 2021, when companies pushed through the pandemic and took advantage of an emerging world of remote work and play and an economy flush with government-backed funds. Private market darlings that raised billions in public offerings, swelling the coffers of investment banks and venture firms, saw their valuations marked down. And then down some more.

Rivian has fallen more than 80% from its peak after reaching a stratospheric market cap of over $150 billion. The Renaissance IPO ETF, a basket of newly listed U.S. companies, is down 57% over the past year.

Tech executives by the handful have come forward to admit that they were wrong.

The Covid-19 bump didn’t, in fact, change forever how we work, play, shop and learn. Hiring and investing as if we’d forever be convening happy hours on video, working out in our living room and avoiding airplanes, malls and indoor dining was — as it turns out — a bad bet.

Add it up and, for the first time in nearly two decades, the Nasdaq is on the cusp of losing to the S&P 500 in consecutive years. The last time it happened the tech-heavy Nasdaq was at the tail end of an extended stretch of underperformance that began with the bursting of the dot-com bubble. Between 2000 and 2006, the Nasdaq only beat the S&P 500 once.

Is technology headed for the same reality check today? It would be foolish to count out Silicon Valley or the many attempted replicas that have popped up across the globe in recent years. But are there reasons to question the magnitude of the industry’s misfire?

Perhaps that depends on how much you trust Mark Zuckerberg.

Meta’s no good, very bad, year

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The big and immediate problem is Apple, which updated its privacy policy in iOS in a way that makes it harder for Facebook and others to target users with ads.

With its stock down by two-thirds and the company on the verge of a third straight quarter of declining revenue, Meta said earlier this month it’s laying off 13% of its workforce, or 11,000 employees, its first large-scale reduction ever.

“I got this wrong, and I take responsibility for that,” Zuckerberg said.

Mammoth spending on staff is nothing new for Silicon Valley, and Zuckerberg was in good company on that front.

Software engineers had long been able to count on outsized compensation packages from major players, led by Google. In the war for talent and the free flow of capital, tech pay reached new heights.

Recruiters at Amazon could throw more than $700,000 at a qualified engineer or project manager. At gaming company Roblox, a top-level engineer could make $1.2 million, according to Levels.fyi. Productivity software firm Asana, which held its stock market debut in 2020, has never turned a profit but offered engineers starting salaries of up to $198,000, according to H1-B visa data.

Fast forward to the last quarter of 2022, and those halcyon days are a distant memory.

Layoffs at Cisco, Meta, Amazon and Twitter have totaled nearly 29,000 workers, according to data collected by the website Layoffs.fyi. Across the tech industry, the cuts add up to over 130,000 workers. HP announced this week it’s eliminating 4,000 to 6,000 jobs over the next three years.

For many investors, it was just a matter of time.

“It is a poorly kept secret in Silicon Valley that companies ranging from Google to Meta to Twitter to Uber could achieve similar levels of revenue with far fewer people,” Brad Gerstner, a tech investor at Altimeter Capital, wrote last month.

Gerstner’s letter was specifically targeted at Zuckerberg, urging him to slash spending, but he was perfectly willing to apply the criticism more broadly.

“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,” Gerstner wrote.

Microsoft's president responds to big tech layoffs

Activist investor TCI Fund Management echoed that sentiment in a letter to Google CEO Sundar Pichai, whose company just recorded its slowest growth rate for any quarter since 2013, other than one period during the pandemic.

“Our conversations with former executives suggest that the business could be operated more effectively with significantly fewer employees,” the letter read. As CNBC reported this week, Google employees are growing worried that layoffs could be coming.

SPAC frenzy

Remember SPACs?

Those special purpose acquisition companies, or blank-check entities, created so they could go find tech startups to buy and turn public were a phenomenon of 2020 and 2021. Investment banks were eager to underwrite them, and investors jumped in with new pools of capital.

Venture capitalists are cashing in on clean tech, says VC Vinod Khosla

“You just don’t know what it’s going to be like going forward,” EY venture capital leader Jeff Grabow told CNBC. “VCs are rationalizing their portfolio and supporting those that still clear the hurdle.”

The word profit gets thrown around a lot more these days than in recent years. That’s because companies can’t count on venture investors to subsidize their growth and public markets are no longer paying up for high-growth, high-burn names. The forward revenue multiple for top cloud companies is now just over 10, down from a peak of 40, 50 or even higher for some companies at the height in 2021.

The trickle down has made it impossible for many companies to go public without a massive markdown to their private valuation. A slowing IPO market informs how earlier-stage investors behave, said David Golden, managing partner at Revolution Ventures in San Francisco.

“When the IPO market becomes more constricted, that circumscribes one’s ability to find liquidity through the public market,” said Golden, who previously ran telecom, media and tech banking at JPMorgan. “Most early-stage investors aren’t counting on an IPO exit. The odds against it are so high, particularly compared against an M&A exit.”

There have been just 173 IPOs in the U.S. this year, compared with 961 at the same point in 2021. In the VC world, there haven’t been any deals of note.

“We’re reverting to the mean,” Golden said.

An average year might see 100 to 200 U.S. IPOs, according to FactSet research. Data compiled by Jay Ritter, an IPO expert and finance professor at the University of Florida, shows there were 123 tech IPOs last year, compared with an average of 38 a year between 2010 and 2020.

Buy now, pay never

There’s no better example of the intersection between venture capital and consumer spending than the industry known as buy now, pay later.

Companies such as Affirm, Afterpay (acquired by Block, formerly Square) and Sweden’s Klarna took advantage of low interest rates and pandemic-fueled discretionary incomes to put high-end purchases, such as Peloton exercise bikes, within reach of nearly every consumer.

Affirm went public in January 2021 and peaked at over $168 some 10 months later. Affirm grew rapidly in the early days of the Covid-19 pandemic, as brands and retailers raced to make it easier for consumers to buy online.

By November of last year, buy now, pay later was everywhere, from Amazon to Urban Outfitters‘ Anthropologie. Customers had excess savings in the trillions. Default rates remained low — Affirm was recording a net charge-off rate of around 5%.

Affirm has fallen 92% from its high. Charge-offs peaked over the summer at nearly 12%. Inflation paired with higher interest rates muted formerly buoyant consumers. Klarna, which is privately held, saw its valuation slashed by 85% in a July financing round, from $45.6 billion to $6.7 billion.

The road ahead

That’s all before we get to Elon Musk.

The world’s richest person — even after an almost 50% slide in the value of Tesla — is now the owner of Twitter following an on-again, off-again, on-again drama that lasted six months and was about to land in court.

Musk swiftly fired half of Twitter’s workforce and then welcomed former President Donald Trump back onto the platform after running an informal poll. Many advertisers have fled.

And corporate governance is back on the docket after this month’s sudden collapse of cryptocurrency exchange FTX, which managed to grow to a $32 billion valuation with no board of directors or finance chief. Top-shelf firms such as Sequoia, BlackRock and Tiger Global saw their investments wiped out overnight.

“We are in the business of taking risk,” Sequoia wrote in a letter to limited partners, informing them that the firm was marking its FTX investment of over $210 million down to zero. “Some investments will surprise to the upside, and some will surprise to the downside.”

Even with the crypto meltdown, mounting layoffs and the overall market turmoil, it’s not all doom and gloom a year after the market peak.

Golden points to optimism out of Washington, D.C., where President Joe Biden’s Inflation Reduction Act and the Chips and Science Act will lead to investments in key areas in tech in the coming year.

Funds from those bills start flowing in January. Intel, Micron and Taiwan Semiconductor Manufacturing Company have already announced expansions in the U.S. Additionally, Golden anticipates growth in health care, clean water and energy, and broadband in 2023.

“All of us are a little optimistic about that,” Golden said, “despite the macro headwinds.”

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From Elon Musk to Sam Bankman-Fried, a bad week for market geniuses

Are founders good or bad for business?

From the FTX bankruptcy and downfall of crypto “rock star” Sam Bankman-Fried to the chaos at Twitter, it has not been a good week for the geniuses of capitalism. Elon Musk’s abrupt and in some cases already reversed decisions since taking over the social media company back up his contention that so far his tenure “isn’t boring,” but also expose the type of corporate governance issues that are too often repeated to the detriment of shareholders.

“Without a doubt, Sam Bankman-Fried is a genius,” said Yale School of Management leadership guru Jeffrey Sonnenfeld in an interview with CNBC’s “Fast Money” on Thursday. “But what’s hard is that somebody has to be able to put on the brakes on them and ask them questions. But when they develop one of these emperor-for-life models … then you really don’t have accountability,” Sonnenfeld said.

Few would doubt the genius of Elon Musk, or Mark Zuckerberg, for that matter, but few would put them in the same class with many companies that have failed spectacularly, though Sonnenfeld says they share the link of being allowed to operate without enough corporate oversight.

“It’s not crazy to talk about Theranos, or WeWork, Groupon, MySpace, WebMD, or Naptster – so many companies that fall off the cliff because they didn’t have proper governance, they didn’t figure out, how do you get the best of a genius?” Sonnenfeld said.

In the case of Bankman-Fried, who stepped down from his CEO role at FTX as the company filed for Chapter 11 bankruptcy on Friday, Sonnenfeld pointed to the lack of a board that should have been asking tough questions.

Tom Williams | CQ-Roll Call, Inc. | Getty Images

But boards are often unable to manage genius, Sonnenfeld said. Zuckerberg is another example. When Meta, formerly Facebook, announced it would be shifting its focus to the metaverse last year, Sonnenfeld said his board members were essentially powerless. Meta laid off 11,000 of its employees this week and announced a hiring freeze as it has faced declining revenue and increased spending on a metaverse bet that Zuckerberg has said may not pay off for a decade.

Tesla shares have not been immune from Musk’s Twitter takeover, with the stock plummeting this week after Musk told Twitter employees on Thursday he sold Tesla stock to “save” the social network. One Wall Street analyst decided that Twitter is now a business risk to Tesla and yanked the stock from a best picks list.

Musk (though not Tesla’s founder) and Zuckerberg oversaw the creation of two trillion-dollar companies, though both have now lost that market-cap status in stock declines caused by a variety of factors — from macroeconomic conditions to sector-specific risks, a market valuation reset for high growth companies, and also leadership decisions.

Market research shows that founders can be a financial risk to company value over time. Founder-led companies have been found to outperform those with non-founder leaders in early year, according to a study from the Harvard Business Review that examined the financial performance of more than 2,000 public businesses, but virtually no difference appears three years after the company’s IPO. After this time, the study found that founder-CEOs “actually start detracting from firm value.”

Major players in Elon Musk’s Twitter deal, including Fidelity Investments, Brookfield Asset Management and former Twitter CEO and co-founder Jack Dorsey, did not take a seat on the company’s board or have a voice throughout the transaction, Sonnenfeld said, which gave the deal no oversight. Musk is now splitting his time between six separate companies: Tesla, SpaceX, SolarCity/Tesla Energy, Twitter, Neuralink and The Boring Company.

Companies led by lone geniuses need strong governance first and foremost. Sonnenfeld says having built-in checks and balances and a board that has field expertise as well as the ability to watch out for mission creep is critical to allowing these businesses to function with less risk of costly blunders.

Tesla and Meta governance scores within ESG rankings have long reflected this risk.

That doesn’t mean the market doesn’t need geniuses.

“Sure, we’re better off with Elon Musk in this world as we are better off with Mark Zuckerberg,” Sonnenfeld said. “But they can’t be alone.”

Through the recent issues, these under-fire leaders have been critical of themselves.

FTX’s Sam Bankman-Fried tweeted Thursday morning that he is “sorry,” admitting that he “f—ed up” and “should have done better.”

Zuckerberg said of the mass layoffs at Meta in a statement equal parts apology and unintended restatement of the governance problem, “I take full responsibility for this decision. I’m the founder and CEO, I’m responsible for the health of our company, for our direction, and for deciding how we execute that, including things like this, and this was ultimately my call.”

Musk tweeted, “Please note that Twitter will do lots of dumb things in coming months.”

But whether an apology or an admission from genius that it too can be dumb on occasion, Sonnenfeld says these leaders would be better off letting others do the criticizing — much sooner, and much more often.

“They have to be managed, they have to be guided and they have to have a board that can help get the best out of themselves and not let them develop this imperial sense of invincibility,” he said.

Meta laying off more than 11,000 employees

Meta is laying off 13% of its staff, or more than 11,000 employees, CEO Mark Zuckerberg said in a letter to employees Wednesday.

“Today I’m sharing some of the most difficult changes we’ve made in Meta’s history,” Zuckerberg said in the letter. “I’ve decided to reduce the size of our team by about 13% and let more than 11,000 of our talented employees go. We are also taking a number of additional steps to become a leaner and more efficient company by cutting discretionary spending and extending our hiring freeze through Q1.”

Shares of Meta were up 4% in premarket trading.

The layoffs come amid a tough time for Facebook parent company Meta, which provided lukewarm guidance in late October for its upcoming fourth-quarter earnings that spooked investors and caused its shares to sink nearly 20%.

Investors have been concerned about Meta’s rising costs and expenses, which jumped 19% year over year in the third quarter to $22.1 billion. The company’s overall sales declined 4% to $27.71 billion in the quarter while its operating income dropped 46% from the previous year to $5.66 billion.

“I want to take accountability for these decisions and for how we got here. I know this is tough for everyone, and I’m especially sorry to those impacted.” Zuckerberg said.

He said Meta is making reductions in every organization but that recruiting will be disproportionately affected since the company plans to hire fewer people in 2023. The company extended its hiring freeze through the first quarter with a few exceptions, Zuckerberg said.

“This is a sad moment, and there’s no way around that. To those who are leaving, I want to thank you again for everything you’ve put into this place,” he added.

Impacted employees will receive 16 weeks of pay plus two additional weeks for every year of service, Zuckerberg said. Meta will cover health insurance for six months.

Meta is heavily investing in the metaverse, which generally refers to a yet-to-be developed digital world that can be accessed by virtual reality and augmented reality headsets. This hefty bet has cost Meta $9.4 billion so far in 2022, and the company anticipates that losses “will grow significantly year-over-year.”

Zuckerberg said during a call with analysts as part of its third-quarter earnings report that Meta plans to “focus our investments on a small number of high priority growth areas” during the next year.

“That means some teams will grow meaningfully, but most other teams will stay flat or shrink over the next year,” Zuckerberg said. “In aggregate, we expect to end 2023 as either roughly the same size, or even a slightly smaller organization than we are today.”

Meta counts more than 87,000 employees as of the end of September.

Here’s Mark Zuckerberg’s letter to employees:

“Today I’m sharing some of the most difficult changes we’ve made in Meta’s history. I’ve decided to reduce the size of our team by about 13% and let more than 11,000 of our talented employees go. We are also taking a number of additional steps to become a leaner and more efficient company by cutting discretionary spending and extending our hiring freeze through Q1.

I want to take accountability for these decisions and for how we got here. I know this is tough for everyone, and I’m especially sorry to those impacted.

How did we get here?

At the start of Covid, the world rapidly moved online and the surge of e-commerce led to outsized revenue growth. Many people predicted this would be a permanent acceleration that would continue even after the pandemic ended. I did too, so I made the decision to significantly increase our investments. Unfortunately, this did not play out the way I expected. Not only has online commerce returned to prior trends, but the macroeconomic downturn, increased competition, and ads signal loss have caused our revenue to be much lower than I’d expected. I got this wrong, and I take responsibility for that.

In this new environment, we need to become more capital efficient. We’ve shifted more of our resources onto a smaller number of high priority growth areas — like our AI discovery engine, our ads and business platforms, and our long-term vision for the metaverse. We’ve cut costs across our business, including scaling back budgets, reducing perks, and shrinking our real estate footprint. We’re restructuring teams to increase our efficiency. But these measures alone won’t bring our expenses in line with our revenue growth, so I’ve also made the hard decision to let people go.

How will this work?

There is no good way to do a layoff, but we hope to get all the relevant information to you as quickly as possible and then do whatever we can to support you through this.

Everyone will get an email soon letting you know what this layoff means for you. After that, every affected employee will have the opportunity to speak with someone to get their questions answered and join information sessions.

Some of the details in the US include:

  • Severance. We will pay 16 weeks of base pay plus two additional weeks for every year of service, with no cap.
  • PTO. We’ll pay for all remaining PTO time.
  • RSU vesting. Everyone impacted will receive their November 15, 2022 vesting.
  • Health insurance. We’ll cover the cost of healthcare for people and their families for six months.
  • Career services. We’ll provide three months of career support with an external vendor, including early access to unpublished job leads.
  • Immigration support. I know this is especially difficult if you’re here on a visa. There’s a notice period before termination and some visa grace periods, which means everyone will have time to make plans and work through their immigration status. We have dedicated immigration specialists to help guide you based on what you and your family need. 

Outside the US, support will be similar, and we’ll follow up soon with separate processes that take into account local employment laws.

We made the decision to remove access to most Meta systems for people leaving today given the amount of access to sensitive information. But we’re keeping email addresses active throughout the day so everyone can say farewell.

While we’re making reductions in every organization across both Family of Apps and Reality Labs, some teams will be affected more than others. Recruiting will be disproportionately affected since we’re planning to hire fewer people next year. We’re also restructuring our business teams more substantially. This is not a reflection of the great work these groups have done, but what we need going forward. The leaders of each group will schedule time to discuss what this means for your team over the next couple of days.

The teammates who will be leaving us are talented and passionate, and have made an important impact on our company and community. Each of you have helped make Meta a success, and I’m grateful for it. I’m sure you’ll go on to do great work at other places.

What other changes are we making?

I view layoffs as a last resort, so we decided to rein in other sources of cost before letting teammates go. Overall, this will add up to a meaningful cultural shift in how we operate. For example, as we shrink our real estate footprint, we’re transitioning to desk sharing for people who already spend most of their time outside the office. We’ll roll out more cost-cutting changes like this in the coming months. 

We’re also extending our hiring freeze through Q1 with a small number of exceptions. I’m going to watch our business performance, operational efficiency, and other macroeconomic factors to determine whether and how much we should resume hiring at that point. This will give us the ability to control our cost structure in the event of a continued economic downturn. It will also put us on a path to achieve a more efficient cost structure than we outlined to investors recently.

I’m currently in the middle of a thorough review of our infrastructure spending. As we build our AI infrastructure, we’re focused on becoming even more efficient with our capacity. Our infrastructure will continue to be an important advantage for Meta, and I believe we can achieve this while spending less.

Fundamentally, we’re making all these changes for two reasons: our revenue outlook is lower than we expected at the beginning of this year, and we want to make sure we’re operating efficiently across both Family of Apps and Reality Labs. 

How do we move forward?

This is a sad moment, and there’s no way around that. To those who are leaving, I want to thank you again for everything you’ve put into this place. We would not be where we are today without your hard work, and I’m grateful for your contributions.

To those who are staying, I know this is a difficult time for you too. Not only are we saying goodbye to people we’ve worked closely with, but many of you also feel uncertainty about the future. I want you to know that we’re making these decisions to make sure our future is strong.

I believe we are deeply underestimated as a company today. Billions of people use our services to connect, and our communities keep growing. Our core business is among the most profitable ever built with huge potential ahead. And we’re leading in developing the technology to define the future of social connection and the next computing platform. We do historically important work. I’m confident that if we work efficiently, we’ll come out of this downturn stronger and more resilient than ever.

We’ll share more on how we’ll operate as a streamlined organization to achieve our priorities in the weeks ahead. For now, I’ll say one more time how thankful I am to those of you who are leaving for everything you’ve done to advance our mission.

Mark”

Watch: Meta has to go back to their core advertising business and double down.

Metaverse entrepreneurs trying to make money on Meta’s Horizon Worlds

A year ago on Friday, Mark Zuckerberg made a huge bet on the metaverse, announcing his company’s name change from Facebook to Meta.

The move has resulted in billions of dollars in losses for his company, and the “metaverse entrepreneurs” who flocked to the company’s virtual world to make real-life money could be easily forgiven for panicking.

But some remain unphased.

“It’s been an incredibly positive experience, and one of the best in my life,” says Aaron Sorrels, a 47-year-old professional comedian who opened a virtual comedy club in Meta’s flagship metaverse platform, Horizon Worlds, last year.

Meta’s latest quarterly earnings report revealed that the company’s metaverse division has lost $9.4 billion this year already. Zuckerberg said he expects those losses to keep piling up as he continues the work of building out the metaverse, even as investors’ concerns mount over a lack of progress.

Horizon Worlds has reportedly struggled to attract and retain users: It currently has fewer than 200,000 monthly active users, less than half its goal of 500,000, according to The Wall Street Journal.

On Thursday, CNBC described Meta’s “stunning collapse” — one that’s seen the company fall out of the 20 largest U.S. companies by valuation amid a streak of three straight quarters of revenue declines. (Meta did not immediately respond to CNBC Make It’s request for comment.)

Those dismal numbers haven’t deterred the enthusiasm of creators like Sorrels.

‘Good engagement’ and a belief in Zuckerberg

Horizon Worlds may not have millions of users, but Sorrels says a relatively steady stream of people visit his Soapstone Comedy Club, where amateurs and professionals perform daily.

In the club’s last full week, Sorrels says he welcomed a total of 15,000 users, who stayed for 20 minutes on average.

“That’s real good engagement and involvement in the club,” he says. “And then even more importantly than that, the people that I’m talking to, they’re really engaging deeply with what we’re doing.”

Audience members use Meta’s recently added monetization tools to make in-app purchases, including what Sorrels calls “applause credits” — a sort of pat on the back for performers. People can also pay $9.99 to get their username permanently added to the Soapstone’s virtual “supporter wall.”

Sorrels shares the proceeds of any in-app purchases with Meta, which can take up to a nearly 50% cut of those sales. The performers don’t receive a cut, even from the applause credits.

The Soapstone isn’t Sorrels’ primary source of income: The Grand Rapids, Michigan-based comedian still performs real-life comedy shows under the moniker “The Unemployed Alcoholic.”

But he does make some money from the metaverse. Sorrels declined to reveal exact figures, but notes that his minimal expenses mostly included paying a developer to help build the virtual experience.

“There’s been … an incredible amount of personal investment time-wise,” he says.

He’s made that commitment because of one man: Zuckerberg. The billionaire’s vision of virtual worlds, along with the $10 billion he’s spent on metaverse development over the past year, “really struck me,” Sorrels says.

“A company like that doesn’t just do that because they think it’s going to be something,” he adds. “They do that because they know it’s going to be something.”

Making a full-time living in the metaverse

Some people do already make a full-time living in the metaverse.

Alexis Dimas, a 37-year-old metaverse creator based in Santa Ana, California, says he joined Horizon Worlds in beta nearly two years ago. He taught himself how to build “worlds” in the virtual game himself using the platform’s developer toolkit, he says.

Dimas, who isn’t a computer software developer by trade, says he’s published more than 25 different worlds on Meta’s platform, from a karaoke-style singing competition venue to one called “Skybridge,” where your virtual avatar walks across a bridge high in the Himalayas mountain range.

Each world includes in-app purchases that go to both Dimas and Meta. Dimas also advertises himself as a paid consultant for other Horizon World creators.

That money is enough to be his “main source of income,” Dimas says, declining to share exact figures but noting that it covers his rent and typical monthly bills.

He also says he hasn’t personally witnessed any of Meta’s reported user retention struggles.

“As far as Horizon Worlds losing users, I haven’t witnessed that or seen that. I mean, I can barely go into the lobby area without a bunch of people coming up to me and asking me questions,” he says. “It’s just always packed everywhere I go.”

Dimas says he understands some of the other Horizon Worlds criticisms, especially the ones centering around cartoonish graphics seen as inferior to those on other virtual platforms.

“The fact that [the avatars] don’t have any legs, or anything, it kind of ruins some of the experience,” he says.

Still, Dimas says he’s optimistic that Meta will continue to improve the experience, and that the tech giant’s future offerings will attract more users going forward.

His livelihood depends on it.

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Big Tech falters on Q3 2022 results as Meta has worst week ever

Facebook CEO Mark Zuckerberg

Marlene Awaad | Bloomberg | Getty Images

Other than Apple, it was a brutal earnings week for Big Tech.

Alphabet, Amazon, Meta and Microsoft combined lost over $350 billion in market cap after offering concerning commentary for the third quarter and the remainder of the year. Between slowing revenue growth — or declines in Meta’s case — and efforts to control costs, the tech giants have found themselves in an unfamiliar position after unbridled growth in the past decade.

Third-quarter results this week came against the backdrop of soaring inflation, rising interest rates and a looming recession. Apple bucked the trend after beating expectations for revenue and profit. The stock on Friday had its best day in over two years.

On the opposite end of the spectrum was Meta, which has seen its stock price collapse in 2022. Facebook’s parent came up short on earnings, recorded its lowest average revenue per user in two years and said sales in the fourth quarter will likely decline for a third straight period.

“There are a lot of things going on right now in the business and in the world, and so it’s hard to have a simple ‘We’re going to do this one thing, and that’s going to solve all the issues,'” Meta CEO Mark Zuckerberg said on the company’s earnings call on Wednesday.

Meta’s stock had its worst week since the company’s IPO in 2012, plunging 24% over the past five days. Microsoft fell 2.6% for the week, due to a 7.7% decline on Wednesday after the company gave weak guidance for the year-end period and missed estimates for cloud revenue.

Things were also bleak at Amazon, which dropped 13%. A gloomy fourth-quarter forecast along with a dramatic slowdown in its cloud-computing unit were largely to blame for the sell-off.

While Amazon Web Services saw expansion slow to 27.5% from 33% in the prior period, Google’s cloud group, which is significantly smaller, sped up to almost 38% growth from around 36%. Google plans to keep spending in cloud even as it intends to rein in headcount overall growth in the next few quarters.

“We are excited about the opportunity, given that businesses and governments are still in the early days of public cloud adoption, and we continue to invest accordingly,” Ruth Porat, Alphabet CFO, said on a conference call with analysts on Tuesday. “We remain focused on the longer-term path to profitability.”

However, results from the rest of Google parent Alphabet were less impressive. The company’s core advertising business grew just slightly, and YouTube’s ad revenue dropped from the prior year. The reverse was true for Amazon, which is playing catchup to Google and Facebook in digital advertising. In Amazon’s ad business, revenue growth accelerated to 30% from 21%, topping analysts’ estimates.

“Advertisers are looking for effective advertising, and our advertising is at the point where consumers are ready to spend,” said Brian Olsavsky, the company’s finance chief. “We have a lot of advantages that we feel that will help both consumers and also our partners like sellers and advertisers.”

Analyst Aaron Kessler at Raymond James lowered his price target on Amazon stock to $130 from $164 after the results. But he maintained his equivalent of a buy rating on the stock and said the company’s “robust advertising growth” has the potential to help Amazon fatten up its margin.

As investors continue to rotate away from tech, they’re finding money-making opportunities in other parts of the market that had previously lagged behind software and internet names. The Dow Jones Industrial Average rose 3% this week, the fourth weekly gain in a row for the index. Prior to 2021, the Dow had underperformed the Nasdaq for five straight years.

WATCH: Wall Street set to open in the red as investors digest disappointing tech earnings

Wall Street set to open in the red as investors digest disapointing tech earnings

Altimeter Capital’s Brad Gerstner calls on Meta to slash headcount

Drew Angerer | Getty Images News | Getty Images

Altimeter Capital Chair and CEO Brad Gerstner said in an open letter to the company and CEO Mark Zuckerberg on Monday that Meta has too many employees and is moving too slowly to retain the confidence of investors.

The Meta investor recommended a plan to get the company’s “mojo back,” including reducing headcount expenses by 20% and limiting the company’s pricey investments in “metaverse” technology — VR software and hardware — to no more than $5 billion per year.

“Meta needs to re-build confidence with investors, employees and the tech community in order to attract, inspire, and retain the best people in the world,” Gerstner wrote in the letter. “In short, Meta needs to get fit and focused.”

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The letter is the latest sign that Meta investors are starting to express reservations about the company’s recent performance. Meta stock is down over 61% in 2022.

At the end of the second quarter this year, Altimeter Capital held more than 2 million shares of Meta.

It’s also a vote of less confidence about the company’s ambitions in the world of virtual and augmented reality. Meta changed its company name from Facebook to better focus on its VR hardware and software and is spending $10 billion per year on the technology.

On Oct. 11, Meta announced a new high-end VR headset, the Quest Pro. However, there are few signs that VR or some of the company’s metaverse apps, such as Horizon Worlds, are catching on with the public beyond early adopters.

“In addition, people are confused by what the metaverse even means,” Gerstner wrote. “If the company were investing $1-2B per year into this project, then that confusion might not even be a problem.”

He said the money the company is currently spending to develop VR could add up for a decade before it comes to fruition.

“An estimated $100B+ investment in an unknown future is super-sized and terrifying, even by Silicon Valley standards,” Gerstner wrote.

Ultimately, Gerstner said, Meta has too many people and is spending too much on capital expenditures. If Meta was able to control those costs, he said, then it could double its free cash flow and improve its share price.

He said a 20% cut in employee spending would take Meta back to the levels of staffing it had last year and argued that the company can’t spend as it used to since the cost of capital and interest rates have risen recently.

In the letter, Gerstner said Altimeter Capital doesn’t have demands and simply wants to engage with Meta management.

Meta didn’t immediately respond to a request for comment.

“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,” Gerstner wrote.

Facebook shuttle bus drivers face layoffs as Meta slashes costs

A car passes by Facebook’s corporate headquarters location in Menlo Park, California, on March 21, 2018. 

Josh Edelson | AFP | Getty Images

Facebook’s plans to cut costs combined with the company’s relaxed remote work policies set the stage for a bunch of shuttle bus staffers to lose their jobs.

WeDriveU, a key vendor that Meta uses for its commuter shuttles, said it will be reducing staff in and around the social media company’s Silicon Valley headquarters by nearly 100 people beginning in November, according to an employment filing viewed by CNBC. Most are drivers, and some are dispatchers, operations managers and supervisors.

Meta shuttle vendor Hallcon Corporation, meanwhile, said it’s laying off 63 staffers from its San Francisco location around Nov. 25, due to a “significant draw down of client services,” according to a separate filing.

“Some employees may be maintained or recalled to work,” a human resources director at Hallcon wrote in the filing. “However, no Hallcon Company employee who is being laid off should count on being recalled.”

Meta has cut shuttle staffers from other contractor firms as well, according to Stacy Murphy, vice president of Teamsters Bay Area Local 853, a union with over 15,000 members in industries including transportation. Murphy said all of the layoffs are coming from one company: Meta.

Meta janitorial staff protests job cuts.

Silicon Valley Rising

“All four vendors are losing people,” Murphy said, referring to the companies that work with Meta.

The layoffs are landing as Meta looks to cut costs by 10% or more over the coming months in response to macroeconomic challenges and the company’s general underperformance. Meta reported its first-ever revenue decline in the second quarter and is expected to record another drop when third-quarter numbers land next week.

The stock is trading near its lowest since early 2019 and is one of the worst performers this year in the S&P 500.

Bus drivers who shuttled Facebook employees around the Bay Area as the company expanded at a rapid clip over the past decade are in a particularly precarious position. Not only is the company now pulling back on costs but it’s also maintaining more flexibility than its tech peers in allowing employees to work from wherever they want.

The company opened its office back up to employees in March but gave staffers the option to work remote permanently or in a hybrid model. Many of San Francisco’s small businesses are struggling to stay afloat because of the changes in the workplace.

Murphy, along with union members, plan to protest Facebook’s cuts, saying it’s “the worst time” to reduce staff as blue-collar workers face rising costs in a market that remains among the priciest in the country. “It’s crazy,” she said of the rising prices.

Hallcon and WeDriveU did not return requests for comment.

In July, CNBC reported that Meta had canceled a contract with custodial workers at its headquarters, resulting in job cuts. Earlier this month, janitorial service workers rallied outside of Meta Shop, a retail space in Burlingame, California, to protest working conditions as well as the cuts. The rally was organized by a labor coalition called Silicon Valley Rising and South Bay coalition. Workers held up signs that read “Justice for Janitors” and alleged the company isn’t treating its essential workers fairly.

Meta janitorial staff protests job cuts.

Silicon Valley Rising

Murphy said Meta has cut dozens of shuttle staff over the last three months but that the latest notification of layoffs represents “the biggest we’ve ever seen.”

Teamsters organized a rally for Thursday afternoon at the busiest intersection around Facebook’s headquarters to protest Meta’s cutbacks. Murphy said one of the union’s efforts is to put pressure on the company to ask employees to return to offices.

“Other tech companies are demanding they come back — why haven’t they?” Murphy said. “They want to stay at home and that impacts all of the people that support the company’s overall performance.”

WATCH: Big Tech faces concerning headwinds

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Meta Horizon Worlds metaverse losing users, falling short of goals: Report

Horizon Worlds, Meta‘s flagship metaverse for consumers, is failing to meet internal performance expectations, according to The Wall Street Journal, which reviewed internal company documents.

Meta initially aimed to reach 500,000 monthly active users in Horizon Worlds by the end of the year, but the current figure is less than 200,000, according to the report. Additionally, the documents showed that most users didn’t return to Horizon after the first month on the platform, and the number of users has steadily declined since spring, the Journal said.

Only 9% of worlds are visited by at least 50 people, and most are never visited at all, according to the report.

The report comes as the company’s stock falls, user numbers decline and advertisers cut spending. Meta shares are down 62% so far this year.

Meta rebranded from Facebook last year in order to reflect the company’s ambitions beyond social media. CEO Mark Zuckerberg has specifically been interested in building out the metaverse, which is a virtual world that allows users to work and play together.

As a result, Meta created Horizon Worlds, which is a network of virtual spaces where users can engage with one another as avatars. Individuals can access Horizon through Meta’s Quest virtual-reality headsets.

In an effort to drum up some excitement around the metaverse, Zuckerberg unveiled his company’s newest virtual reality headset, dubbed the Meta Quest Pro, at Meta’s Connect conference Tuesday. The device costs $1,500 and contains new technologies, such as an advanced mobile Snapdragon computer chip.

A Meta spokesman told The Wall Street Journal that the company continues to make improvements to the metaverse, which was always meant to be a multiyear project. Representatives for Meta didn’t immediately respond to CNBC’s request for comment.

Meta has said it will release a web version of Horizon for mobile devices and computers this year, but the spokesman didn’t have any launch dates to disclose.

Read the full Journal report here.

Mark Zuckerberg debuts Meta Quest Pro VR headset that will cost $1,500

Meta to unveils Quest Pro, new 'mixed reality' headset that supports AR and VR

Meta CEO Mark Zuckerberg said on Tuesday that his company’s newest virtual reality headset, dubbed the Meta Quest Pro, will cost $1,500 and start shipping on Oct. 25.

Zuckerberg debuted the device at Meta’s Connect conference, geared toward VR and augmented reality developers.

The new headset costs $1,100 more than Meta’s Quest 2 headset and contains new technologies like an advanced mobile Snapdragon computer chip, developed with Qualcomm, that helps the device produce more advanced graphics.

The Quest Pro also has improved touch controllers that contain embedded sensors, allowing for better hand tracking, and new lenses for improved reading experiences.

The Meta Quest Pro, which will cost $1,500.

Meta

The new headset contains some mixed-reality features that can blend elements of the virtual world with the physical world. Zuckerberg has touted that as an important feature in the creation of the metaverse, which refers to digital worlds that people can access via VR and AR headsets.

Microsoft CEO Satya Nadella also appeared during the online event and discussed a partnership with Meta intended to bring some of his company’s work-collaboration apps to Quest VR devices.

Some Microsoft apps that people will be able to access with a Quest device include the Team’s chat app, the Microsoft 365 suite of work software and the company’s Xbox cloud gaming service.

“You will be able to play 2D games with your Xbox controller projected on a massive screen on Quest,” Nadella said. “It’s early days, but we’re excited for what’s to come.”

Meta shares were down about 4.5% in midday trading to $127.85, underscoring a muted response from investors about the new VR headset.

WATCH: Meta to release new high-end VR headset

Meta to release new high-end VR headset

Here’s how uber-rich pass wealth tax-free to heirs during down markets

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A lousy stock market is often no reason for investors to cheer. But for the uber-rich, it may offer a route to lower estate taxes down the road.

That’s because one type of trust gives them better odds of shifting some wealth to their children, grandchildren or other heirs tax-free when markets are down — but a subsequent rebound is expected, according to estate planners.

A grantor-retained annuity trust — or “Grat”— facilitates tbenefit.

In basic terms, the wealthy put assets like stocks in a privately held business into the trust for a specified time, maybe two, five or 10 years. Afterward, any investment growth passes to their heirs and the owner gets back the principal.

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By shifting any future appreciation out of their estate, the wealthy can avoid or reduce estate taxes at death. The investment growth becomes a tax-free gift to heirs. Absent growth, the asset simply passes back to the owner without a transfer of wealth.

Depressed assets that are likely to “pop” in value over the trust’s duration, therefore, yield the highest likelihood of success.

The S&P 500, a barometer of U.S. stocks, is down about 24% year to date — making it a ripe time to consider a Grat, estate planners said.

“It’s reasonable to believe the market will improve over the next two years,” Megan Gorman, founder and managing partner of Chequers Financial Management in San Francisco, said of trusts with a two-year term. “We will likely have significant appreciation pass to beneficiaries.”

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Mark Zuckerberg, co-founder and CEO of Meta Platforms, in July 2021.

Kevin Dietsch | Getty Images News | Getty Images

High-end real estate hit hardest by price declines

“It’s the one-tenth of 1% of society to whom this is really applicable,” Richard Behrendt, an estate planner based in Mequon, Wisconsin, and a former estate tax attorney at the IRS, said of the trusts. “But for that segment, I think it’s a golden opportunity.”

The estate-tax threshold is scheduled to be cut in half starting in 2026, absent an extension from Congress. A Republican-passed tax law in 2017 doubled the estate-tax threshold to around its current level but only temporarily.

The looming deadline may mean individuals with roughly $6 million estates (or $12 million for married couples) may weigh a wealth transfer now too, experts said.

Why rising interest rates are a headwind

Jerome Powell, chairman of the U.S. Federal Reserve, on Sept. 23, 2022.

Al Drago | Bloomberg | Getty Images