Wall Street Layoffs Send Stocks Soaring

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In an unexpected show of solidarity, Wall Street’s leading analysts unanimously came out in support of Meta Corp’s decision to lay off half its workforce yesterday, citing more efficient business practices and higher profits going forward. This isn’t the easiest time to make cuts in the face of so many investors, but sometimes you have to do what’s best for the bottom line, and I think Meta did that here, said Charles Naylor, senior analyst at Key Investments. You can’t maintain the same level of sales with twice as many employees.

Following the company’s announcement that it would be letting go of more than 11,000 employees, Meta’s shares ended the day Wednesday up 5%.

The layoffs, in the opinion of UBS analysts, are a strong indication that the firm “gets it,” as seen by their positive response to Meta’s statement on Wednesday. The analysts kept their buy recommendation on Meta shares and praised Zuckerberg’s statement in his staff message about being “more capital efficient.”

In a note published on Wednesday, they stated, “We think Meta cost reductions – across opex and capex – shows that the management understands investors, and we think the shares may move higher.”

The third quarter saw a 19% year-over-year increase in Meta’s expenditures and expenses, raising them to $22.1 billion, which has investors worried. Late in October, the business gave lacklustre profit expectations for the forthcoming fourth quarter, which alarmed investors and sent its shares down about 20%.

The value of Meta’s shares has fallen by more than 71% so far this year, and as of last week, the business was the S&P 500’s poorest performance.

The numerous difficulties Meta is experiencing are not resolved by the layoffs, according to analysts at RBC Capital Markets, but “management’s first olive branch is at least a start.”

On Meta, they kept their outperform ranking.

The RBC analysts wrote in a note on Wednesday that while the announcement “does nothing to alleviate the concerns around competition, signal loss and the perception of excessive Metaverse investment,” it is the first indication the CEO is willing to accede to shareholders’ desire for investing a bit more cautiously given the various headwinds the business faces.

JPMorgan analysts expressed support for Meta’s staff cuts and stated that the business could possibly save $8 billion annually as a result of the layoffs.

“While we had hoped the 2023 expense outlook would decrease even further, the workforce reduction overall is probably greater than most people had anticipated and demonstrates management is operating with increased discipline, particularly after a difficult almost two-week period since reporting 3Q earnings,” says the author.

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