When Meta Platforms (META) posted user growth in the anemic single-digit percentage in its last report, investors dumped the stock. At around $88 a share, CEO Mark Zuckerberg had to address the issue. The company announced it would cut 11,000 jobs.
Meta said that it made a mistake in hiring too many people. The business growth that it expected did not arrive. Apple’s IDFA permanently damaged Meta’s advertising business model. Meta needed to downsize its workforce to achieve two things.
First, Meta should expect advertising revenue to continue falling. The recession is forcing corporations to cut spending which has low returns. They will spend less on ads. Initiatives on Instagram, Whatsapp, and Facebook.
Second, Meta must strengthen its walled platform. It can no longer rely on Instagram and Facebook for user growth. Metaverse is an expensive proposition. However, it could potentially pivot people away from smartphones and computers to the virtual platform.
At below 11 times earnings, investors could get a double return if Metaverse works out and the P/E expands to 22 times. Conversely, the forward P/E could fall by half, to around 7 times. Slow uptake of metaverse will scare investors. It increases the risk of the CEO canceling the project and getting nothing in return.
