Meta's Downsizing Is An Encouraging Sign With More Room For Cuts Like Reality Labs, Analyst Says

Meta's Downsizing Is An Encouraging Sign With More Room For Cuts Like Reality Labs, Analyst Says
  • Mizuho analyst James Lee reiterated a Buy on Meta Platforms Inc META with a $160 price target.
  • Meta announced that it would lay off about 11k employees, or 13% of its total headcount across the Family of Apps and Reality Labs segments
  • FY22 expense outlook is unchanged at 22% YoY growth, Lee wrote in a Thursday note titled "Total Costs to Decline to 12% YoY; an Encouraging Start but More Room to Go." 
  • However, the company lowered FY23 expense guidance by 2 points to 12% YoY growth at $97 billion at the midpoint. 
  • At the same time, Meta cut FY23 Capex guidance by 3 points to 9% YoY growth ($35.5 billion) from 12% ($36.5 billion). 
  • The company expects losses from Reality Labs to grow significantly YoY in FY23. 
  • Although this is an encouraging start to disciplined spending and investments, he sees the company has more room to go. 
  • For example, Reality Labs would incur $13 billion in operating losses in FY22, or 11 points of operating margin. 
  • As a comparison, the layoffs save the company $1.5 billion, just 1 point of operating margin. 
  • With a consensus revenue estimate for FY23 at 6% YoY growth, Lee believes Meta should align total expense growth with top-line growth.
  • Price Action: META shares traded higher by 8.50% at $110.10 on the last check Thursday.

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