Meta’s reported cost cutting could save $5 billion, according to Morgan Stanley

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 Leak Herald 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.”

A product marketing manager at Meta demonstrates using the oculus headset during a preview of the inaugural physical store of Facebook-owner Meta Platforms Inc in Burlingame, California, U.S. May 4, 2022. REUTERS/Brittany Hosea-Small

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].”

Brian Sozzi is an editor-at-large and anchor at Leak Herald Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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