Will META shares bounce back after Facebook parent starts cost cuts?

Meta (FB) shares are in the hot seat right now, as the technology group saw its stock price slump more than 3% on Thursday, after it announced, it was to embark on cost-cutting measures. Could these cost cutting measures help the share price bounce back?

Meta (FB), which owns the social media site Facebook, as well as Instagram and messaging service WhatsApp, has seen its stock price decline by 59% this year.

Meta (FB) share price chart

Hiring freeze and team restructuring 

CEO, Mark Zuckerberg, announced that the company will put a freeze on hiring and restructure some teams, during a weekly Q&A session with staff, according to an employee who had attended the sessions.

“I had hoped the economy would have more clearly stabilized by now, but from what we’re seeing it doesn’t yet seem like it has, so we want to plan somewhat conservatively,” Zuckerberg said.

Meta (FB) plans to reduce its budgets across most teams and individual teams will manage their own headcount changes, this could mean not filling roles as employees leave or moving people to other teams, according to a report in Bloomberg.

In July, Meta (FB) released its second-quarter earnings and its CFO, David Wehner said: “We expect 2022 total expenses to be in the range of $85-88bn, lowered from our prior outlook of $87-92bn. We have reduced our hiring and overall expense growth plans this year to account for the more challenging operating environment while continuing to direct resources toward our company priorities.”

“We expect 2022 capital expenditures, including principal payments on finance leases, to be in the range of $30-34bn, narrowed from our prior range of $29-34bn.”

Poor earnings 

Its second-quarter earnings saw Meta (FB) report a drop in sales and revenue.

AJ Bell Investment Director Russ Mould wrote in a note about the group’s second-quarter earnings release: “Through Facebook, WhatsApp and Instagram, Meta’s business model was perfectly adapted to helping people cope with the isolation of the pandemic and lockdowns, but management seems to have assumed that the good times would roll for ever.”

Meta’s first-quarter earnings stated its plan to cut back, as the group said that its annual expenses would be approximately $3bn (£2.7bn) lower than initially projected, the initial estimate was around $95bn.

The company hasn’t announced whether it would make any layoffs but, like its fellow tech giant Alphabet (GOOG), has leaned more on hiring freezes. This month it was reported in Bloomberg that Alphabet, parent of search engine site Google, has also required some employees to apply for new jobs to stay at the company.

“Meta (FB) is responding to this profit and share price mauling. It is reining in hiring plans and trimming back operating expense budgets by around 5%, based on the mid-point of management guidance, for 2022. Additions to office space at Astor Place and Hudson Yards in Manhattan are reportedly on hold,” Mould said.

“That sort of activity – or lack of it – will make economists and central bankers shudder. If even the largest, well-resourced, highly profitable firms are cutting back, it does make you wonder what smaller companies who are even more susceptible to a profit squeeze will be thinking and doing.”

Alphabet (GOOG) share price chart

So, will these cost cuts aid Meta’s plan towards a stock price rebound? Only time will tell, but analysts are less than optimistic.

“A first-ever year-on-year drop in sales, a third consecutive year-on-year drop in profits and forecasts from management which suggest there may be worse to come all leave Meta Platforms (FB) struggling to stem a year-long share price slide,” Mould said.

“A weakening advertising market, loss of share to Google and TikTok and ongoing regulatory pressure are all putting on the squeeze and Meta (FB) is responding by cutting back on hiring and spending plans – just the sort of stuff upon which economic slowdowns or even recessions are made,” Mould concluded.

Further reading