Regular readers know that I have never been a fan of Meta Platforms (META) , once known as Facebook, nor of its Chief Executive Mark Zuckerberg. I have missed out on the stock's runs to glory as well as their fall from grace as I had always thought of the firm as sloppy, management as poor, and its leader as immature. It took enough years, but I am starting to reassess my view.
On Tuesday morning in a memo to staff (which was on the firm's website), in a continuance of the firm's "Year of Efficiency" mandate, Mark Zuckerberg informed his firm that another 10K layoffs were on the way in addition to the 11K (13% of the firm at that time) individuals that were let go back in November. Zuckerberg also announced that 5K open job listings were being eliminated as well. The memo goes on with the already announced restructuring and makes the claim that lower priority projects would be cancelled.
In an 8-K filing with the SEC, also on Tuesday... Meta Platforms announced that it now expects total expenses for full year 2023 to be in a range spanning from $86B to $92B, which is down from prior guidance of $89B to $95B. This is inclusive of restructuring costs of $3B to $5B related to facilities consolidation charges, severance, and other personnel related costs.
Am I Impressed?
I am starting to be. Meta Platforms appears to have gotten some religion as far as managing a large business in a tougher environment is concerned. The problem is after so much gluttony for so many years, there is probably a way to go in order to right size the operation.
We know that the easy money provided through the tracking of consumers using Meta's many apps on Apple (AAPL) mobile devices is not coming back. Apple has correctly protected their users, or at least allowed their users to protect themselves. Competition for advertising dollars is only getting tougher as the economy itself is probably going into a slowdown.
Zuckerberg also said that the firm was taking steps to "complete our analysis from our hybrid work year of learning so we can further refine our distributed work model." I read that as workers better be willing to work on location and maybe they should not wait to be asked.
Earnings & Fundamentals
Meta does not report its first quarter until the end of April. Remember that the firm fell short of earnings expectations for the fourth quarter while beating revenue projections. That revenue beat, by the way, came with a 4.5% year over year contraction. For the current quarter, Wall Street is looking for EPS of about $2.00 on revenue of about $27.6B. This would compare to $2.72 for the year ago period on $27.91B, which would come to a year over year contraction of another 1.1%.
Simply put, META is not a growth stock, which is why it trades at "just" 20 times twelve months forward looking earnings. I say "just" because that is still expensive in this market. That said, the firm is still a cash flow beast. For that most recent quarter, META still drove operating cash flow of $14.511B and free cash flow of $5.468B.
Turning to the balance sheet, META (as of year's end) still had a cash position of $40.738B and current assets of $59.549B. With current liabilities at $27.026B (that includes no short-term debt), the firm ended/started the year with a current ratio of 2.2, which is quite healthy. Total assets amounted to $185.727B, including $21.203B in "goodwill" and other intangibles. At 11% of total assets, I do not see a problem. Total liabilities less equity comes to $60.014B. This includes just $9.923B in long-term debt.
This balance sheet is in darned good shape. No other way to put it.
Wall Street
I have found 13 sell-side analysts that have both opined on META since this memo was released on Tuesday morning and are rated at a minimum of four stars by TipRanks. All 13 rated META as a "buy" or their firm's "buy-equivalent rating. One analyst chose to not set a target price, so we are working with 12 targets.
Across these 12 analysts, the average target price is $246.08 with a high of $305 (Mark Mahaney of Evercore ISI) and a low of $220 (Colin Sebastian of Robert W. Baird). Once omitting these two as potential outliers, the average across the other 10 analysts drops to $242.80.
The Chart
Tuesday's run put the stock up against the early February high of $197. That top was the result of a still unfilled gap up opening in response to the firm's prior guidance regarding the reduction of expenses. This is the apex of what is now the right side of the cup in a cup with handle pattern.
So, buy the stock now? Not so fast. The stock is trading with a $193 handle and the pivot is still up at $197. I would rather buy the stock on momentum after taking that level than just below that spot. The stock seems to have taken the 21-day EMA (exponential moving average) for a nice ride.
That's where I think I am interested in buying any dip should the volatility that we are experiencing this week provide one. So, its $179 or $197, Sarge? Let's say $198. We need to see that pivot break. I'll tell you what. I think that if we can get $198, we can see $226... but not unless the pivot cracks.
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