Meta contrasts with 'slow and lethargic pace' of its rivals as it cuts more jobs
By Emily Bary
The Facebook parent's headcount will move back toward mid-2021 levels, which an analyst says sees as a 'clear sign' Meta overestimated its growth potential
Meta Platforms Inc. continues to cut jobs, and its management continues to win praise from Wall Street analysts for the moves.
The Facebook parent company, once determined to plod away with heavy spending in 2023, changed its tune last November when it announced plans to lay off more than 11,000 workers and cut its expense forecast. Meta (META) announced 10,000 more layoffs Tuesday, while reducing its expense targets once again.
See more: Meta to cut 10,000 more jobs in latest round of layoffs for Facebook parent
Before the first round of cuts, Meta had been targeting $96 billion to $101 billion of expenses, including about $2 billion of restructuring charges. Now the company expects $86 billion to $92 billion in operating expenses, inclusive of $3 billion to $5 billion in restructuring charges.
"In a span of less than five months, Meta has reduced recurring operating expenses by as much as $18 billion from a high of $99 billon to a low of $81 billion," wrote SVB MoffettNathanson analyst Michael Nathanson, factoring out the restructuring costs.
In his view, it's no "coincidence" that Meta's job cuts bring its headcount back to where it was toward the middle of 2021.
"Rather, it is a clear sign that the company, like many others in this industry, over-hired during the pandemic as they overestimated long-term structural growth," he wrote. "With growth decidedly slowing since mid-2021 due to a myriad of factors, Meta has made the (very) rational decision to cut their cost base."
Read: Mark Zuckerberg warns that 'new economic reality' could continue for years as Meta makes more layoffs
Truist Securities analyst Youssef Squali agreed that the additional cuts seemed to make sense. "This move is a welcome development in an environment where growth has materially slowed and where forward visibility remains hazy," he wrote in a note to clients Tuesday.
Bernstein analyst Mark Shmulik likened Meta's layoffs to the process of carving a spoon out of wood in art class. The delicate process involves many slices, but one would have to be careful not to slice too much and wreck the project.
"Meta's 'Year of Efficiency' has been a sight to behold, especially when held up in comparison with the slow and lethargic pace of action on display from their closest peers," Shmulik said in a Wednesday report. "But will Zuck's efforts result in a leaner, meaner Meta, or will he take one slice too many?"
He was inclined to give Meta Chief Executive Mark Zuckerberg credit for his attempts at righting the ship.
"Only time will tell if the company's productivity improvements scale, or if morale breaks with employee job security unclear for the rest of the year, but it's hard not to back a CEO who seems reenergized on reshaping the company in his image," Shmulik wrote.
Rosenblatt Securities analyst Barton Crockett mused that cost cuts are nice, but there could be additional ways for Meta's management to unlock value for shareholders.
"The pivot to operating efficiency is great," he wrote. "But we see another 40% equity upside potential if CEO Mark Zuckerberg were to add capital efficiency to the push, too, and spin off Reality Labs into a separate unit, and add more appropriate leverage, using proceeds to buy back stock."
Reality Labs, which houses Meta's virtual-reality efforts, is "an obvious target for capital optimization" in his view, given its steep losses.
Meta shares were down about 2% in premarket trading Wednesday, after rising more than 7% in Tuesday's session to help the company clinch a closing market capitalization above $500 billion for the first time since June.
-Emily Bary
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March 15, 2023 08:27 ET (12:27 GMT)
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