Facebook parent Meta Platforms is in the process of reorganizing and slashing 21,000 jobs to achieve what Chief Executive Mark Zuckerberg calls a "year of efficiency." So the question now is, will investors show their approval by purchasing Meta stock?
The answer, for now, is a resounding yes.
Since early November, when the company announced it would cut 11,000 jobs, Meta stock has shot up about 135%. The run-up got another push on Feb. 1 when the company reported fourth-quarter results. That's when Zuckerberg said 2023 would be a "year of efficiency."
That's also when Meta announced a whopping $40 billion stock buyback plan.
"Meta faced a host of headwinds in 2022, including issues lingering from years past, and an onslaught of new challenges," Monness Crespi Hardt analyst Brian White said in a recent note to clients. "Meta is now taking heroic steps to improve its cost structure."
All Social Media Companies Struggling
Meta, like all social media companies, is struggling due to a sharp reduction in advertising. In addition, these companies are squirming over macroeconomic concerns, fears of a recession and higher interest rates.
Meanwhile, Facebook is spending billions on a risky bet to build the metaverse, a planned virtual reality world.
But the cost-cutting efforts underway have largely spared Meta's metaverse efforts, which remain as costly as ever. Reality Labs, the division of Meta building its Quest headsets and coming augmented glasses, reported an operating loss of $13.72 billion for 2022.
"Last year was a humbling wake-up call," Zuckerberg said in March. At that point, the company announced plans to cut an additional 10,000 jobs.
"The world economy changed, competitive pressures grew, and our growth slowed considerably," he said.
Meta stock analysts worry Zuckerberg is spending on his metaverse dreams with reckless abandon and little to show for it. That's been a concern since Facebook changed its corporate name to Meta in the fall of 2021.
Worried About Enormous Investments
'We worry about META's enormous investments in the Metaverse." Needham analyst Laura Martin wrote in a recent note to clients.
"META talks about the returns on its Metaverse investments in terms of 2030, well beyond most investors' time frames," she said. "There is no need to be in META today if its Metaverse spending will only pay off in 2030."
'In the back of our minds, we worry that META's enormous spending to create the Metaverse indicates that it fears existential risks to its core historical business models," Martin said.
TD Cowen analyst John Blackledge wrote in his note to clients: "We view META as the premier social advertising platform, which is itself becoming a more strategic component of an advertising campaign."
Blackledge recently raised his price target on Meta stock to 190 from 175. Further, he gave it a rating of market perform.
"Meta has established a strong mobile capability, and we expect further monetization levers in 2022, including video advertising," said Blackledge. "We think there are other ad formats and products that will be introduced longer term."
Meta Stock: 3.7 Billion Active Users
Baird analyst Colin Sebastian recently raised his price target on Meta to 220 from 205, with a rating of outperform.
"As the dominant social network, Meta has an almost unprecedented level of network effects that secure its position as the world's leading social network," said Sebastian.
Meta has a combined 3.7 billion monthly active users. That includes Facebook and its photo-sharing Instagram. It also includes messaging platform Messenger and its multifaceted communications platform WhatsApp.
"Meta is amassing the most comprehensive user profile database in existence," said Sebastian. "That offers significant opportunity to monetize a significant portion of the multibillion-dollar market."
But Meta seems undaunted, at least for now. The company stuck to its guns even when it announced its second round of layoffs in mid-March.
"I believe that we are working on some of the most transformative technology our industry has ever seen," Zuckerberg said.
"Our single largest investment is in advancing AI and building it into every one of our products," Zuckerberg went on to say. "We have the infrastructure to do this at unprecedented scale. I think the experiences it enables will be amazing."
