Wednesday’s announcement by club holding Meta Platforms ( META ) is a sign that CEO Mark Zuckerberg has “become a believer,” in Jim Cramer’s words, to hire about 13% of its workforce, or more than 11,000 employees. When trying to handle costs that are out of control of the company. While we’re not happy that people are losing their jobs, we’d like to point out that the severance packages seem generous, and we hope they can blunt some of the blow for those unfortunate enough to be included in these layoffs. The Meta rose about 8.5% in Wednesday trading on news of the job cuts. But it still has plenty to make up for following its 24.5% fall on October 27. Even with Wednesday’s gains, Meta’s stock is down nearly 69% year to date and is one of the worst performers of 2022. B 500 company. As painful as the layoffs are, especially in this economic climate, we think the move is necessary after Facebook-parent’s poor third-quarter results and weak outlook last month. At the time management guided for a mid-teen percentage point increase in expenses, contrary to investors’ wishes, as expenses fell and expense growth fell further in line with revenue forecasts. Jim has been calling on Meta and other tech companies for months to recognize the severity of global macro headwinds and reduce their costs. So we are glad to see signs that management is finally waking up to the realities of the operating environment in which we find ourselves. In a letter to employees about the layoffs, Zuckerberg wrote, “We are taking several additional steps to become a leaner and more efficient company by reducing discretionary spending and extending our hiring freeze through Q1.” In a Securities and Exchange Commission filing about the layoffs, Meta calculated its efficiency efforts, saying the group now expects total 2023 expenses to be between $94 billion and $100 billion, up from $96 billion to $101 billion. Quarterly earnings release. The revised guidance reflects management’s “plan to add fewer employees in 2023 than we previously anticipated as we significantly reduce our hiring trajectory in early 2023.” Contributing to the lowering of the cost outlook, management now expects capital expenditures (capex) to be in the range of $34 billion to $37 billion, down from $34 billion to $39 billion previously forecast. Notably, however, management’s expectation that Reality Labs losses will “grow significantly year over year” remains unchanged. Reality Labs is the virtual reality and metaverse division of the company. As a knock-on effect, this capex reduction by Meta could put some of the pressure we see on semiconductor stocks, which have bid up following Meta’s initial cost guidance. However, as we noted during Wednesday’s “morning meeting,” we are not looking to cut any of our semiconductor positions based on this news. Members can review the dynamics of cloud and data center spending and our guide to semiconductor enterprise sales to the chip industry and how it’s performing. While the Meta layoffs are just a start, the company has added about 19,000 employees to its headquarters in the past year alone, in the third quarter. Ahead of the Q3 release, longtime Meta shareholder Altimeter Capital Management’s Brad Gerstner called for several key changes that would help double free cash flow to $40 billion a year and “focus on the company’s teams. Investments.” In an open letter to the administration on October 24, Gerstner called for several actions. At least 20% staff reduction; Effective release of all employees recruited during the previous year. annual capex reduction of at least $5 billion; Management instead guided for a $2 billion 2023 capex reduction at the high end of its previous range, which it detailed earlier. Limit Metaverse-specific investments to “no more than $5 billion per year.” Given these steps have been well received by Wall Street, it’s fair to say that Wednesday’s news is a start — and just that, a start. Achieving a milestone would require about 6,000 additional layoffs. As for other expenses, while the top-line reduction in capex is welcome, we’re nowhere near the $25 billion investors would like to see, and it’s clear that management has no intention of slowing down investment in the Reality Labs division. Here’s some Wall Street reaction to the news. JP Morgan’s analysts said, “We had hoped that the 2023 cost outlook would be more subdued, that overall staff reductions may be greater than most people expected and that management is acting with increased discipline, especially after a difficult nearly 2-week period since reporting 3Q earnings.” In their view, this move “could theoretically eliminate ~$8B in costs on an annual basis.” Analysts at UBS said, “We think meta cost reductions – across opex [operating expenditures] and capex — signals that the company is listening to investors, and we think the stock could go higher.” According to their estimate, cutting $2 billion in operating expenses could add about 60 cents per share to 2023 earnings — or costs eventually. Analysts see a good chance of downsizing, noting that in 2022, realized operating expenses will be 10% lower than what was guided for the third quarter of 2021. Management guided for total expenses to be between $91 billion and $97 billion in 2022. While that did nothing to assuage concerns about competition, signal loss and overinvestment in Metaverse — which CEO H. Given the various headwinds the business faces, it appears willing to acquiesce to shareholders’ wishes.” At Canaccord Genuity, analysts said, “We view this announcement as increasingly positive for the stock, especially given continued macro. Uncertainty and a broad-based slowdown in digital advertising will help Meta’s cost structure better align with Meta’s current growth trajectory, appeal to existing investor sentiment, and improve overall operating efficiency.” The estimates result in an upward revision. However, more will be needed before we see a sustainable move. Its As a result, Wednesday’s update helps solidify a bottom in the stock and gives investors reason to become more constructive on the stock. However, we don’t think the name needs more exposure as there are better areas to put money to work where fundamentals are higher in line with the macroeconomic landscape. We downgraded and cut our price per share from $235 to $150.Finally, Meta’s announcement is what we’ve been seeing across the industry. We want to acknowledge that and help the Federal Reserve achieve its goal of slowing the economy, which reduces inflation. (In that sense, Thursday’s release of the government’s consumer price index will be particularly significant.) Here’s a quick look at what our other clubs are doing to control costs. Salesforce ( CRM ) confirmed on Monday that it had let fewer than 1,000 people. Reports speculated that the reduction would be more than double. Qualcomm ( QCOM ) CEO Cristiano Amon told us last week that the chipmaker is prioritizing cost-cutting, including hiring freezes. Amazon ( AMZN ) this week expanded its hiring freeze to its entire corporate workforce. Now that Covid is less of a problem, Amazon is trying to rescale its operations, which were bulked up to meet crushing demand early in the pandemic. Alphabet ( GOOGL ) said in forward guidance last month that its fourth-quarter headcount was expected to be less than half of the 12,765 hired in the third quarter. The administration’s moves to slow the pace of hiring should be more apparent next year. (Jim Cramer’s holdings are long META, CRM, AMZN, QCOM and GOOGL. See here for a full list of stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you’ll receive a trade alert from Jim. Jim waits 45 minutes after sending a trade alert before buying or selling a share in his trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing a trade alert before executing the trade. The Investment Club information above is subject to our terms and conditions and privacy policy, along with our disclaimer. 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Meta Platforms Inc. during the virtual Meta Connect event on Tuesday, October 11, 2022 in New York, USA. CEO Mark Zuckerberg speaks.
Michael Nagel | Bloomberg | Good pictures
Wednesday’s announcement from club holding Meta platforms ( META ) employs about 13% of its workforce, or more than 11,000 employees, a sign that CEO Mark Zuckerberg has, in the words of Jim Cramer, “got religion.” Manage uncontrollable expenses of the company. While we’re not happy that people are losing their jobs, we’d like to point out that the severance packages seem generous, and we hope they can blunt some of the blow for those unfortunate enough to be included in these layoffs.
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