While cutting more jobs, Meta contrasts with the 'slow and lethargic pace' of its competitors

Despite Meta Platforms Inc.'s continued job cuts, Wall Street analysts continue to praise the company's management for the actions it is taking.

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Once determined to plow away with heavy spending in 2023, Facebook's parent company changed its tune last November when it announced plans to lay off over 11,000 workers and to reduce its expense forecast for the year ahead. There were 10,000 more layoffs announced by Meta META, 1.05% on Tuesday, as the company once again lowered its spending targets.

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Meta had planned to cut $96 billion to $101 billion of expenses before the first round of cuts, including about $2 billion in restructuring costs. As of now, the company expects operating expenses to be between $86 billion and $92 billion, including restructuring charges of $3 billion to $5 billion.

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“Over the course of the last five months, Meta has been able to reduce recurring operating expenses by as much as $18 billion from a high of $99 billion to a low of $81 billion,” writes SVB MoffettNathanson analyst Michael Nathanson, factoring in the costs of restructuring.

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As he sees it, it's not a mere coincidence that Meta has reduced its headcount once again due to its job cuts, giving them back to where they were in the middle of 2021.

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“It is more likely that the company over-hired during the pandemic because they overestimated their long-term structural growth as a result of overestimating the effects of the epidemic," he concluded in his letter. “Since the growth rate of Meta has started to slow down as a result of a number of factors, Meta has made the (very) rational decision to cut their cost base as a result.”

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Youssef Squali, an analyst at Truist Securities, also agreed with the analyst that the additional cuts appeared to be justified. “The move represents a welcome development in an environment where growth has materially slowed and forward visibility is hazy, he said in a note to clients.”

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Mark Shmulik, an analyst at Bernstein, compared Meta's layoffs to the process of carving a spoon from wood in art class. “It is a delicate process involving many slices, but one would have to be careful not to slice too much, otherwise, the project could be ruined.”

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“Meta's "Year of Efficiency" has been impressive, especially when compared with the slow, lethargic pace of action of their closest peers,” Shmulik said. “Zuck's efforts may result in a leaner, meaner Meta, but will he go overboard? ”

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Having said that, he was inclined to give Meta Chief Executive Mark Zuckerberg credit for his efforts in trying to right the ship.

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Shmulik wrote, "Only time will tell if the company's productivity improvements can scale, or if employees' morale breaks if they are uncertain about their job security for the rest of the year, but it is difficult not to support a CEO who seems reenergized about reshaping the company in his image."

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Barton Crockett of Rosenblatt Securities said that although cost cuts are nice, Meta's management can unlock even more value.

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"The pivot to operational efficiency is great," he wrote. "However, we see another 40% equity upside potential if Mark Zuckerberg spins off Reality Labs and adds more appropriate leverage using proceeds to buy back shares."

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Based on the steep losses that Reality Labs has suffered over the last year, he believes that it is an obvious candidate for capital optimization, as it houses Meta's virtual-reality efforts.

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For the first time since June, Meta's shares fell about 2% in premarket trading Wednesday, after gaining more than 7% in Tuesday's session to help the company close with a market capitalization above $500 billion for the first time since its inception.