With user growth slowing due to intense competition from TikTok and a more focused Mark Zuckerberg, the layoff axe may be about to swing at Meta as it looks to jump-start its sagging stock price.
The social media giant is planning to slash expenses by at least 10% in the coming months, according to a new report from The Wall Street Journal. Meta has already begun the process, WSJ reports, by pushing out staffers during departmental re-shufflings.
Meta didn't return Yahoo Finance's request for comment.
If Meta goes through with the reductions, according to new research out Thursday from Morgan Stanley's Brian Nowak, that could lead to "~$5 billion of annual operating expense savings in 2023."
Notably, it's unclear if Meta will dump that money into its metaverse buildout or leverage the savings to prop up a stock that has crashed 57% in the past year.
Here are the finer details on the impact of Meta's potential expense cuts from Nowak:
Price Target: $225 (reiterated)
Rating: Overweight (reiterated)
Stock price movement assumed: +60%
Nowak estimates that the expense savings could be huge for Meta.
"We estimate that a 10% reduction in the 2Q:22 ~$18.5 billion run rate operating expenses (excluding depreciation and amortization) would imply ~$5 billion of annual operating expense savings in 2023. We arrive at this by reducing the 3Q operating expense base by $1.8 billion then assume 4Q:22/'23 opex grows in line with our current sequential opex forecast. Said another way, our current model implies Met'a 2023 opex grows ~10%... reaching ~$82 billion (excluding depreciation and amortization). As such, ~$5 billion of savings would reduce opex (excluding depreciation and amortization) to ~$77 billion in 2023 (~6% reduction)."
Nowak added that based on Morgan Stanley's 2023 revenue estimate for the company of ~$126 billion (+7% year over year growth), "and applying a 10% cost reduction — resulting in $77.2 billion total [operating expenditure] (excluding depreciation and amortization) – leads to $48.6 billion/$36.7 billion of 2023 EBITDA/EBIT (11%/16% increase). Finally, we see 2023 GAAP EPS increase ~10% under this scenario to $10.85 from $9.90."
Nowak still loves Meta's stock long-term.
"We are positive on Meta's monetization roll-out of Instagram as well as Meta's ability to continue to innovate and improve user engagement on the platform. We are modeling ~18% GAAP [operating expenditure] (excluding one-time items) growth in 2022, implying an incremental ~$13 billion in [operating expenditure]."