Met Platforms Emphasizing Cost Cuts Will Be a ‘Key Catalyst’ – Morgan Stanley

Met Platforms Emphasizing Cost Cuts Will Be a ‘Key Catalyst’ – Morgan Stanley

Written by Sinad Karahimetovic

The Wall Street Journal reported yesterday that Meta Platforms (NASDAQ:) may cut costs by 10% or more over the next few months. Cost reductions may result from internal business reorganizations that may see some jobs become redundant.

Meta reported a 22% year-over-year cost increase to more than $20 billion during the second quarter as the race for top talent heated up. Earlier, chief product officer Chris Cox told employees that the company was “going through dangerous times here and the headwinds are fierce.”

“We need to execute flawlessly in an environment where growth is slowing, where teams should not expect massive influxes of engineers and new budgets.”

An analyst at Morgan Stanley estimates that META could increase earnings per share to nearly $11 in 2023 if the cuts are confirmed.

β€œWe estimate that a 10% decrease in the second quarter: $22~18.5 billion OpEx operating rate (excluding D&A) would mean approximately $5 billion in annual OpEx savings in ’23….assuming our revenue estimate for 23 Unchanged (~$126 billion, +7% annual growth/) and application of a 10% cost reduction – resulting in $77.2 billion in total operating expenses. D&A) – resulting in $48.6 billion / $36.7 billion in EBITDA /EBIT (11%/16% increase) Finally, we see β€œ23 GAAP EPS increases 10% under this scenario to $10.85 from $9.90,” he explained in a client note.

Confirmation of Wall Street Journal reports, as well as more clarity on revenue, engagement/time-outs and reel monetization, are seen as major third-quarter catalysts for META shares for a higher revaluation.

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Meta shares closed at $142.12 yesterday.

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