Meta Analyst Estimates Potential Cost Savings From Fresh Round Of Layoffs, Mostly from Metaverse

  • Mizuho analyst James Lee reiterated Buy on Meta Platforms Inc (NASDAQ: META) with a $210 price target.

  • Several major news outlets indicated that Meta could initiate another round of layoffs at a similar scale to the last round at 13% of employees.

  • Reportedly, the focus of the restructuring is wearable-device units within the Metaverse division.

  • At the same time, the company is reportedly shutting down its New Product Experiment Group, created in 2019.

  • Meta would fold any new development efforts into existing product development teams.

  • Lee applauds the company’s efforts to drive further efficiency during economic uncertainty, and FY23E consensus implies Reality Labs to incur expenses at 12% of revenues in FY23 (or $14 billion). Hence, the capacity for cost optimization is meaningful.

  • Based on reports, the analyst estimates total savings of $1.1 billion for FY23E could come from headcount reduction.

  • Furthermore, the analyst estimates additional potential cost savings of $1.1 billion from discontinued products and projects in Metaverse and New Product Experiment Groups.

  • Lee estimates total cost savings could reach $2.3 billion for FY23, or nearly 7% upside to consensus FY23E OPI.

  • The analyst sees further catalysts if the reported restructuring gets executed along with opex savings from discontinued products.

  • Price Action: META shares traded higher by 1.71% at $182.58 on the last check Monday.

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