Meta Platforms (META) Receives A Boost On Report Of Layoffs, But Big Picture Questions Remain
3:03 pm Monday, November 07th, 2022
Meta Platforms (META), which is suffering through its most challenging period as a public company, is on the verge of laying off thousands of employees as it looks to slash expenses. According to the Wall Street Journal, which broke this story, the broad-based job cuts could come as early as Wednesday. It doesn’t come as a surprise that layoffs are coming since META CEO Mark Zuckerberg has signaled a few different times that workforce reductions were under consideration. Most recently, during the 3Q22 earnings conference call, Zuckerberg commented that while some teams within the company will grow meaningfully, others will stay flat or will shrink next year.
However, Zuckerberg also stated that he anticipated head count at the end of 2023 to be approximately in line with 3Q22 levels. That statement was somewhat surprising and disappointing to investors who were expecting META to significantly lower its cost structure. On that note, META’s FY23 operating expense guidance of $96-$101 mln, representing a projected yr/yr increase of 15% at the midpoint, did not go over well and was a primary reason why the stock cratered by about 25% the day after its earnings report.
With META expecting its revenue to decline on a yr/yr basis for the third consecutive quarter in Q4, it’s evident that the company needs to be right sized and better aligned with an eroding demand landscape. Its troubles, including market share losses to TikTok and privacy changes for Apple’s (AAPL) iOS, are well documented. However, the big picture issues that are plaguing META run even deeper and can’t be fully remedied by layoffs.
Although it’s still relatively early in META’s transformation process, the results for Reality Labs so far have been quite discouraging. In Q3, Reality Labs’ revenue tumbled by nearly 50% to $285 mln, while the operating loss worsened to $(3.7) bln from $(2.6) bln in the year-earlier period.
META has no plans to let off the accelerator, though, and is forecasting FY23 capex of $96-$101 bln, equating to an estimated yr/yr increase of 12%. A majority of the spending will be poured into the loss-generating Reality Labs segment.
The main takeaway is that investors are relieved to see that META is taking its cost cutting efforts seriously after the company issued disappointing FY23 operating expense guidance. Serious questions and doubts regarding the company’s metaverse aspirations remain, though, and we anticipate that META’s financial performance will continue to underwhelm for the foreseeable future.
