Finance

Meta’s cost cutting could save $5 billion

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With user growth slowing due to intense competition from TikTok and a more focused Mark Zuckerberg, the layoff axe may be about to swing at Meta as it looks to jump-start its sagging stock price.

The social media giant is planning to slash expenses by at least 10% in the coming months, according to a new report from The Wall Street Journal. Meta has already begun the process, WSJ reports, by pushing out staffers during departmental re-shufflings.

Meta didn’t return Yahoo Finance’s request for comment.

If Meta goes through with the reductions, according to new research out Thursday from Morgan Stanley’s Brian Nowak, that could lead to “~$5 billion of annual operating expense savings in 2023.”

Notably, it’s unclear if Meta will dump that money into its metaverse buildout or leverage the savings to prop up a stock that has crashed 57% in the past year.

Here are the finer details on the impact of Meta’s potential expense cuts from Nowak:

  • Price Target: $225 (reiterated)
  • Rating: Overweight (reiterated)
  • Stock price movement assumed: +60%

Nowak estimates that the expense savings could be huge for Meta.

“We estimate that a 10% reduction in the 2Q:22 ~$18.5 billion run rate operating expenses (excluding depreciation and amortization) would imply ~$5 billion of annual operating expense savings in 2023. We arrive at this by reducing the 3Q operating expense base by $1.8 billion then assume 4Q:22/’23 opex grows in line with our current sequential opex forecast. Said another way, our current model implies Met’a 2023 opex grows ~10%… reaching ~$82 billion (excluding depreciation and amortization). As such, ~$5 billion of savings would reduce opex (excluding depreciation and amortization) to ~$77 billion in 2023 (~6% reduction).”

Nowak added that based on Morgan Stanley’s 2023 revenue estimate for the company of ~$126 billion (+7% year over year growth), “and applying a 10% cost reduction — resulting in $77.2 billion total [operating expenditure] (excluding depreciation and amortization) – leads to $48.6 billion/$36.7 billion of 2023 EBITDA/EBIT (11%/16% increase). Finally, we see 2023 GAAP EPS increase ~10% under this scenario to $10.85 from $9.90.”

A product marketing manager at Meta demonstrates using the oculus headset during a preview of the inaugural physical store of Facebook-owner Meta Platforms Inc in Burlingame, California, U.S. May 4, 2022. REUTERS/Brittany Hosea-Small

Nowak still loves Meta’s stock long-term.

“We are positive on Meta’s monetization roll-out of Instagram as well as Meta’s ability to continue to innovate and improve user engagement on the platform. We are modeling ~18% GAAP [operating expenditure] (excluding one-time items) growth in 2022, implying an incremental ~$13 billion in [operating expenditure].”

Reports / Trainviral /

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