Meta Platform’s Cost Cuts Boost its Appeal

Meta Platforms (META) has rallied 54% this year, the fifth-best performer among stocks in the Nasdaq 100 Stock Index ($IUXX) (QQQ), after the company pledged to be more efficient.  Meta Platforms looks to rally further today after Bloomberg News reported that the company is planning a fresh round of layoffs and will cut thousands of employees as soon as this week. 

Optimism in Meta Platforms has improved after the company shifted its strategy to favoring cost controls and earnings over growth.  Such optimism should only increase if U.S. lawmakers successfully ban China’s TikTok. Whatever the outcome, analysts are upbeat about Meta Platform’s outlook.  Based on the average price targets compiled by Bloomberg, analysts see Meta Platform’s stock price rising an additional 16% over the next 12 months, better than the implied upside for rivals Pinterest (PINS) at 11% and Snap (SNAP) at 8.9%.

The growing optimism in Meta Platforms is backed by a valuation that tumbled last year amid earnings setbacks and investor skepticism about the company’s expensive pivot toward the metaverse.  Even after the recent rally, Meta Platforms trades at 15 times forward earnings, well below its 10-year average of 26 and below the Nasdaq 100’s 23 times forward earnings.  Also, the consensus recommendation for Meta Platforms, a measure of buy, hold, and sell ratings among analysts, has risen to 4.3 out of 5, the highest since October.

Confidence in Meta Platform’s profit outlook is also increasing.  The average estimate for Meta’s adjusted 2023 earnings has risen by 4.4% over the past month, better than other companies that depend on the online advertising market.  The consensus for Alphabet is down -1.9% in the same period and Snap’s earnings estimates have plunged more than -40%.

CFRA Research said with its popularity among young users, TikTok “has been taking an increasing pie of the digital as dollars from other social media players.” If legislation to block TikTok in the U.S. is passed, the lessening of the competitive landscape would add another boost to Meta Platform’s stock price.  Zack’s Investment Management said, “a ban on TikTok would present a meaningful opportunity for Meta to fill the void, but even if there isn’t one, the investment case remains robust.” 

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