10K Laid Off and Weak Results — Why Is Meta Stock Up 54% YTD?

Meta is now in CEO Mark Zuckerberg’s “year of efficiency,” and this week, we got a glimpse of what that means — 10,000 more employees laid off, with 5,000 new job openings closed and a companywide “restructuring” aimed at keeping expenses lower than the $89 billion to $95 billion range experts expect.

And so far, investors are digging it.

After Zuckerberg posted the news to Meta’s homepage Tuesday, Meta stock closed 7.3% higher. In the market’s opening hours Wednesday, Meta rose to its highest 2023 share value — $195.73 — before getting tangled in bearish sentiments brought on by fears over banking giant Credit Suisse.

It might seem odd that Meta’s stock would surge after more layoffs. After all, its last earnings report wasn’t all that glamorous, with total revenue from 2022 down 1.12% year over year and net income 41.07% lower than 2021.

With so much negative news, Meta stock is still up 54% since the beginning of the year. If that confuses you, let’s look at what’s happening with Meta and why investors are feeling bullish this year.

The first reason Meta is doing well is that the company has taken its operating costs seriously.

This was not the case in 2022, when Meta lost 60% of its market value (roughly $450 billion). After reporting a second quarter of consecutive losses in October 2022, Zuckerberg asserted that the company would spend more money in 2023 to develop its metaverse at Reality Labs. Investors found this hard to swallow because Reality Labs cost Meta $13.72 billion in 2022 and generated only $2.16 billion in return.

Fast forward to March 2023, and Zuckerberg has taken a different approach to spending. Per his public announcement, Zuckerberg is cutting “lower priority projects” and trimming middle-management positions. This follows a round of 11,000 layoffs announced in November 2022, part of a wave of tech layoffs.

So far, that has meant letting go of about 25% of the company’s 2022 workforce, with more layoffs expected in April.

And it’s not like Meta is bleeding cash. The company has a strong balance sheet, with $40.73 billion in cash on hand and $185 billion in total assets.

But cutting costs has restored faith with investors. After years of investing heavily on growth, Meta’s focus on efficiency makes it look more like a mature company.

The second reason Meta is enthusing investors is that it’s pivoting from the metaverse to artificial intelligence.

In February 2023, Zuckerberg said Meta would create a top-level product team focused on developing a content-generative AI tool. This tool, if created, would compete with OpenAi’s ChatGPT and possibly other versions from Google, Microsoft and Snapchat.

The announcement was a relief for longtime Meta investors because it showed the company was making strategic decisions to profit off an emerging trend in technology. More importantly, it showed that Zuckerberg and leadership were flexible and willing to admit their mistakes.

In his letter, Zuckerberg admitted that last year was a “humbling wake up call” and that the company’s growth “slowed considerably” as the “world economy changed.” He also said that building AI into all of Meta’s apps was now the company’s “single largest investment,” even if the metaverse remained a “central focus.”

For investors, this was great news. The metaverse, though intriguing, seemed like a sinking ship: Meta didn’t have a clear objective, and the company didn’t know how it would profit from the technology. But AI technology does have clear profitable uses. The company can use it internally to help its engineers work more efficiently. And AI bots on Facebook or Instagram could improve users’ experiences and possibly increase subscribers to both platforms.

Meta is still down from its all-time high of $382.18 in September 2021. And though it still has a long way to go in cutting costs and developing AI technology, its “year of efficiency” is a good sign for long-term investors.