Meta Platforms Inc META shares jumped Wednesday after the company announced it is laying off more than 11,000 employees in an effort to cut costs.
Even after Wednesday's rally, Meta shares are down 69.7% overall year-to-date, and some employees have begun questioning CEO Mark Zuckerberg's obsession with building the metaverse.
Zuckerberg Takes Responsibility: Zuckerberg announced Facebook's corporate re-branding as Meta Platforms roughly one year ago, but the transition has been far from smooth.
In addition to slowing user and revenue growth, Meta recently reported its Reality Labs metaverse division has lost $9.4 billion in the first three quarters of 2022.
In an open letter to Meta employees on Wednesday, Zuckerberg apologized for the layoffs and said he takes full responsibility for failing to anticipate the slowdown the company has endured in 2022. Zuckerberg told employees that Meta needs to become more capital efficient in the new environment.
"We’ve shifted more of our resources onto a smaller number of high priority growth areas — like our AI discovery engine, our ads and business platforms, and our long-term vision for the metaverse," Zuckerberg said.
While Zuckerberg seems convinced the metaverse is the next long-term growth catalyst for his company, Business Insider reported on Wednesday that at least some former Meta employees are questioning Zuckerberg's tunnel vision.
"It's the only thing Mark wants to talk about," one former Meta director said of the metaverse.
Another former employee who recently left the company said there's still a wide disconnect between the metaverse's hype and the state of the actual product.
"There's still not much to touch or look at, much less use," the person said.
Analyst Take: Meta analysts say the company's focus on the metaverse and the difficult environment for online advertisers has created a tremendous amount of risk for investors.
Bank of America analyst Justin Post said this week the downward pressure Meta shares have faced in recent weeks has been more about its out-of-control costs than the company's 2023 revenue growth outlook.
"If we back out $15bn in estimated 2024 Metaverse losses, we get to an adjusted valuation at 6x 2024 GAAP earnings, which could look increasingly attractive if Metaverse spend is being actively contained," Post said.
He remains cautious on Meta shares given the company's uncertain outlook for 2023. Bank of America has a Neutral rating and $136 price target for Meta.
Benzinga's Take: At this point, Meta investors simply have to trust that Zuckerberg, who successfully built Meta into a $270-billion social media juggernaut, knows what he's doing in throwing the kitchen sink at building the metaverse.
With Meta shares trading at just 11.7 times forward earnings, risk may finally be skewed to the upside for long-term investors from a valuation perspective.
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