For Meta (META) this year, the road ahead will focus on better execution with fewer employees, and maybe a higher stock price, argues RBC analyst Brad Erickson.
“We think they are making improvements in terms of targeting and measurement, and we think that is translating into incremental dollar growth and advertising,” Erickson said on Yahoo Finance Live (video above).
Meta is Erickson’s top pick from his sector coverage for 2023. The bullish call comes after a brutally challenging year for Meta as the economic slowdown weighed on corporate advertising spending.
And it wasn’t just the floundering ad market that posed problems for Meta. The overall macroeconomic climate – one that’s hammered all of Big Tech – also slammed the Facebook parent company.
“2022 was a relative disaster by almost any measure with the sector’s FY performance [and] valuation falling 56% and 53% respectively,” Erickson wrote in a Jan. 11 note about internet stocks. “Rising interest rates and broad-based inflationary pressures brought investor expectations even further back to Earth.”
Simultaneously, the company has been navigating its costly efforts to build itself out as the go-to metaverse name, having just changed its name from Facebook in 2021.
For the nine months ending Sept. 30, Meta’s sales were relatively unchanged, but operating income tanked by $12 billion year-over-year as the company was caught by surprise by the extent of the sales slowdown.
To stabilize its bottom line, Meta said in late November it would slash 13% of its workforce, more than 11,000 employees.
“I want to take accountability for these decisions and for how we got here,” Zuckerberg said in a message to employees at the time. “I know this is tough for everyone, and I’m especially sorry to those impacted. I view layoffs as a last resort, so we decided to rein in other sources of cost before letting teammates go. Overall, this will add up to a meaningful cultural shift in how we operate.”
Meta shares have crashed 52% over the past year, but the company appears to be focusing its efforts on efficiency and is expected to say as much in its Feb. 1 earnings. Year to date, shares are up 15% as traders position for a bottom-line boost from cost-cutting efforts.
Though things don’t necessarily look great going into its 2022 earnings, Erickson believes the company is taking the right steps to restore investor confidence.
In the Jan. 11 note, he added that if Meta can assuage fears about ascendant competitor TikTok, it will go a long way toward getting the company to barrel forward in the right direction.
“Structurally, we like the fact that they are restoring that [demand] signal and think that can carry increasing tailwinds as we move through 2023,” Erickson said.