Meta Platforms – Token gesture.

Zuckerberg throws his gadflies a bone.

• If Mr Zuckerberg really intends to cater to the interests of minority investors he should immediately realign his voting interest in the company with his economic interest as the cuts announced this week are not much more than a token gesture.
• Meta Platforms has announced that it will cut 11,000 employees in a move that should reduce OPEX by around $1.2bn which for all intents and purposes is a rounding error in terms of total OPEX.
• Hence, I see this as a token gesture to keep investors quiet in another sign that when it comes to pecking order, Meta ranks investors dead last.
• This is not the first time that Meta has shown its disdain for its minority shareholders as in 2017 the company proposed to issue a new class of shares that would further tilt the voting balance in favour of Mr Zuckerberg.
• In this instance, Mr Zuckerberg wanted to sell some of his stake in Meta Platforms but not give up any of his control of the company (see here).
• After the threat of a class action lawsuit, this plan was withdrawn but it serves as an example that Meta Platforms views minority investors as a nuisance and ranks them well below the officers of the company as well its employees and customers.
• To be fair to the company, these practices are no secret and no one has been forced to buy the shares meaning that investors who are whining about these issues do not have a leg to stand on.
• The problem with these reductions is that they should have gone hand in hand with a change in guidance for 2023.
• As it stands today, OPEX in 2022 will be around $86bn and the company has guided that this will rise by 14.5% to $98.5bn (midpoint).
• If I factor in these reductions (assuming they are complete by Jan 1^st 2023), then 2023 OPEX should be reduced from $98.5bn to $97.3bn or a rather puny 1.2%.
• This means if revenues are flat at $116bn (they might decline), EBIT will be $18.7bn which after-tax translates into $15bn of net income or $5.58 per share.
• This puts the company on 20.0x 2023 PER which is very expensive for a company where earnings have fallen precipitously with no recovery in sight.
• Furthermore, governance remains poor with Mr Zuckerberg alone in the driving seat meaning that a heavy discount is warranted to fair value when looking for an entry point into this stock.
• The shares have recovered sharply with the lower-than-expected US CPI release but the largest reversals or bounces are always seen in a bear market.
• Hence, I don’t think the worst is over for this company and with its short to medium-term outlook, $70 per share is where I would begin to get interested.
• There are far better options to look at where there is growth to be had at a much lower multiple.