Meta’s cost focus is ‘a positive,’ analyst says, amid reports of more layoffs

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The potential for further layoffs at Meta Platforms Inc. is resonating with analysts Monday after another report indicated that the social-media giant is planning additional job cuts.

Meta
META,
+1.77%
in November announced plans to lay off more than 11,000 employees, representing about 13% of its workforce. The Wall Street Journal reported Friday that Meta was considering further layoffs that are “expected to reach the same proportion of those who remain,” citing multiple unnamed sources.

Read: Meta job cuts could match last year’s, says report

Future layoffs could affect Meta’s Reality Labs division, which houses hardware and metaverse efforts. The Wall Street Journal report noted that some wearable-device projects could be cut in conjunction with a workforce reduction.

MarketWatch has reached out to Meta for comment on whether it plans layoffs of this scale and whether intended cuts are expected to affect Reality Labs projects.

Reality Labs, dubbed a “money pit” by one analyst, is a controversial area of Meta’s business due to its heavy losses. Meta’s management, however, sees big long-term potential in the metaverse and in getting people to connect virtually in new ways. There seems to be a discrepancy between how Meta’s investors and its executives view metaverse efforts, and the company’s lofty October projections for future metaverse spending contributed to pressure on Meta’s stock at that time.

“We applaud the company’s efforts to drive further efficiency during economic uncertainty, and [the fiscal 2023 estimate] consensus implies Reality Labs to incur expenses at 12% of revenues in [fiscal 2023] (or $14bn), so the capacity for cost optimization is meaningful,” Mizuho analyst James Lee wrote Sunday.

Looking at reports, he estimates $1.1 billion in total 2023 savings driven by layoffs and a further $1.1 billion in savings fueled by a discontinuation of some metaverse products and projects.

“Further commitment to efficiency and cost reductions being shown is obviously a positive — though we wonder how much dry powder here is left as employee morale likely continues to suffer given the persistence of the [reductions in workforce] in recent months,” RBC Capital Markets’ Brad Erickson added in a note to clients.

He discussed the prospect that Meta could cut operating expenses to a similar degree as it did last year, meaning that $13 to $14 a share in GAAP earnings is “increasingly in play” for 2024.

After Meta shares plunged 64% in 2022 to mark their worst annual performance on record, they’re on track for a stronger 2023. The stock is up 49% to start the year.

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