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Meta Platforms Confirming Cost Cuts Would be a 'Key Catalyst' - Morgan Stanley

September 22, 2022 7:41 AM EDT
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Price: $135.68 -0.54%

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

Meta reported a 22% YoY increase in costs to over $20 billion during the second quarter as the race for top talent heats up. Earlier, Chief Product Officer Chris Cox told staff that the company is “in serious times here and the headwinds are fierce.”

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

Morgan Stanley analyst Brian Nowak estimates META could fuel its EPS to almost $11 in 2023 if cuts are confirmed.

“We estimate that a 10% reduction in the 2Q:22 ~$18.5bn run rate OpEx (excluding D&A) would imply ~$5bn of annual OpEx savings in '23…. Assuming our '23 revenue estimate is unchanged (~$126bn, +7% Y/Y growth) and applying a 10% cost reduction – resulting in $77.2bn Total OpExex. D&A) – leads to $48.6bn/$36.7bn of '23 EBITDA/EBIT (11%/16% increase). Finally, we see '23 GAAP EPS increase ~10% under this scenario to $10.85 from $9.90,” Nowak explained in a client note.

The confirmation of WSJ reporting, as well as getting more clarity on revenue, engagement/time spent, and reels monetization, are seen as key Q3 catalysts for META shares to re-rate higher.

Meta shares closed at $142.14 yesterday.

By Senad Karaahmetovic



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