Is Mark Zuckerberg finally listening to investors?
Institutional investors were disappointed by Meta’s Q3 earnings but even more disappointed during the investor talks after the Q3 release as the key takeaway was that CEO Mark Zuckerberg is acting like a absolute monarch listening to no one. As result Meta’s slide continued last week below $100 and ending just above $90 on Friday. The Wall Street Journal reported yesterday that Meta is planning to lay off thousands of employees to send the signal to investors that it is serious about preserving profitability while maintaining its aggressive bet on the metaverse. Investors are reacting to this unconfirmed news sending the shares 3% higher in pre-market trading.
Zuckerberg is clearly getting to the conclusion that something has to happen with Meta’s share price down 76% from the peak and the 12-month P/E ratio plunging to around 10 which 40% below the S&P 500. If Meta can prove that it can stabilize operating income through layoffs while maintaining growth in its core business and show more promising progress on its metaverse bet, then the P/E ratio could recover back to the S&P 500 average. In this event, the stock has a 60% gain potential, but such a move is not risk-free for investors. The key risks for Meta is the competition from TikTok, lack of monetization of WhatsApp, higher energy costs running datacenters, cash compensation pressures due to employee stock options losing value, and institutional investors continuing selling their shares.