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Mark Zuckerberg getting ‘cloud cover’ from Musk, elections: Strategist

Julie Biel, portfolio manager at Kayne Anderson Rudnick, joins Yahoo Finance Live to discuss Meta layoffs, the rise of TikTok, and the outlook for social media stocks.

Video Transcript

- Well, Meta is officially announcing that it will be cutting 11,000 jobs-- that is 13% of its workforce-- in the latest wave of job cuts hitting the tech industry. Joining me now to discuss is Julie Biel, portfolio manager at Kayne Anderson Rudnick. Julie, you know I was struck by this note that Mark Zuckerberg put out to his employees today saying that he thought that the revenue gains that were made over the last two years would last forever. Essentially, a permanent acceleration is what he said he expected.

This just didn't materialize. I mean, what does today's cut say about the macro environment? And what does it say about how this company has been operating at a time where some would argue was just say a temporary spike brought on by the pandemic?

JULIE BIEL: Well, I mean, I think it's interesting, right, because it's a little bit talking out of both sides of his mouth. I think what he's realized is that the efforts and the investments he's making in AR are maybe not exactly going to be panning out the way that he had hoped. And I think the other thing to keep in mind is that two years ago it wasn't clear that TikTok was going to be as dominant as it is.

And that's really the fear that caused a shiver down everyone's back as this company is growing so well. It's so much more innovative than anything we have here in the United States. So I think they're kind of eating their lunch. And seeing an economic downturn, we shouldn't be surprised that advertisers are going to be pulling back spending.

So I think all of this makes a lot of sense. I think he just has a lot of cloud cover right now to take these cuts in hiring because Elon fired half his workforce. So he doesn't even look that bad. I don't think it's a coincidence that he's announcing this on the day of the elections. It's going to get kind of washed over in the news cycle.

- I mean, when you say that Elon Musk is giving him some cloud cover, I mean, what does that suggest about other companies that are potentially maybe on the fence about cuts? Are you saying that because of the way that the cuts over at Twitter were handled, a lot of other tech companies are saying, well, I don't feel so bad pulling the trigger now?

JULIE BIEL: Yeah. I mean, we had already seen companies deciding to take cuts and either stop hiring or make layoffs. And so that had already been happening before what went on at Twitter. But for sure no one really looks that bad if you compare firing half your workforce and then calling back some of them and being like, actually, it would be great if you guys came back.

So I think it's certainly made it easier for if you're a tech executive. But I think we're going to see more of these because there's no space that was doing more over hiring than the tech sector. So I think, overall, that's where the recession is probably going to start.

- And you talked about Mark Zuckerberg trying to have it both ways. I mean, in this note, he said specifically that in this new environment, we need to become more capital efficient. And yet, this is a company that is betting big on the metaverse, a vision that some would argue isn't really going to materialize for at least 10 years, maybe longer. What does that say to investors about the priorities of the company right now?

JULIE BIEL: Yeah. It's really unclear. I think they've been trying to convince us that the business use case for VR is really there. And I have yet to have someone really explain it to me in a way where the economic model makes a lot of sense. It sure is capital intensive. That I understand. But understanding how it's actually going to pay off beyond some simulation for surgeons or what have you. I don't think any of us really want to sit in a VR space to conduct office meetings. They're already bad enough as it is.

- Julie Biel, portfolio manager at Kayne Anderson Rudnick. Appreciate your time today.

JULIE BIEL: Thank you.