- Meta’s stock price jumped 2% in premarket trading, but was dragged down by the market as whole after comments from Fed Chairman Jerome Powell
- It puts the company up 47.92% year to date, after a fall of 64.45% in 2022
- It’s been a rollercoaster ride for Meta investors over the past few years, but this efficiency drive could help bring the company back to their core revenue drivers
Meta shareholders continue to be bullish on the company’s new efficiency drive, with further layoffs pushing the stock price up around 2% to $188.88 at Tuesday’s open.
It gave up these gains over the rest of the day and actually finished the day slightly in the red, dragged down by hawkish comments from Fed chairman Jerome Powell over the next planned interest rate decision.
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So far 2023 has been a fantastic year for Meta investors, after a horrorshow in 2022. Year to date the stock has gained almost 50%, rising from $124.74 on January 3rd to hit a closing high of $191.62.
It has since pulled back slightly from these highs, but the latest talk of further layoffs — or ‘efficiencies’ in management speak — has shareholders breathing a sigh of relief. In part because it obviously means a leaner operating model, but also because it appears that Zuckberg may finally be pausing his cash burning metaverse projects.
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Meta’s stock price performance in 2022
This positive start to 2023 follows a year that most Meta investors will want to forget. For brave souls who had stayed invested through the entire year, they will have seen their stock fall from $338.54 down to $120.34.
That’s a drop of 64.45%.
This included some all-time bad days for investors. The company recorded its worst single day performance ever on February 3rd, dropping 26% from $323 down to $237.76. This came off the back of a weak earnings call and the announcement of their first ever decline in daily active users.
October 26th gave the record a run for its money, with another poor quarterly earnings call causing a drop of 24.5%, taking the stock price down below $100 for the first time since 2016, closing at $97.94
Meta’s stock price performance so far in 2023
As we mentioned at the outset, Meta’s stock price is up almost 50% so far in 2023. The stock closed at $184.51 on Thursday, bringing the total gain for the year to 47.92%.
The stock has been boosted by what Mark Zuckerberg is calling the ‘year of efficiency’. Layoffs have obviously been a big part of this, as have plans to shelve or scale back projects that aren’t working.
At last month’s earnings call, Zuckerberg stated that they would proactively be looking at “cutting projects that aren’t performing or may no longer be crucial.”
These comments and layoff announcements in late 2022 drove the stock up 19.22% in January and a further 40.22% in February. So far the year of efficiency seems to be working, and it’s likely necessary given that costs and expenses ballooned 22% in the year to Q4 2022, with sales dropping 4% over the same period.
This latest round of layoffs are expected to happen imminently, with Meta planning to cut thousands of employees, potentially as early as this week. So far the details of which areas of the company, which owns multiple business units including Facebook, Instagram and WhatsApp, will be impacted.
Why does ‘efficiency’ boost stock prices?
Common sense would suggest that layoffs and cost cutting should be a bad thing from an investing standpoint. After all, it suggests that the company has made poorly judged management choices, be that hiring too many people or expanding into markets or service verticals that aren’t working.
But it’s important to keep in mind that stock markets are forward looking. Prices don’t react based on what’s happened in the past, but instead what is happening right now and what is likely to happen in the future.
Once information is made public, it becomes built into the current share price.
So when Meta announces quarterly profit figures, that moves the stock price because while it happened over the previous three months, the information is new. Once that information is out there, the stock price reacts and it is then ‘priced in’.
By the same token, business decisions that investors believe will improve a company’s bottom line in the future are likely to be positive for stock prices.
The story in tech for some time has been how bloated and inefficient they are. Large salaries, insane perks and expensive office spaces on the profit and loss statement make investors nervous, because they rely on sky high revenue to cover them and still turn a profit.
So when Mark Zuckerberg talks about cutting costs, that makes investors happy. Cost savings directly impact the bottom line, with the major caveat that they’re able to do that while still growing or maintaining revenue.
Meta’s stock price outlook
If the ‘year of efficiency’ continues, then we may see strong performance continue for Meta over the rest of this year. The challenge for Zuckerberg will be to implement his efficiency drive while still growing revenue.
Eyes will be keenly peeled for the Q1 2023 results, which should begin to show the level of financial impact being felt by the cost cuts.
If they’re able to achieve higher revenue while bringing down costs, this will improve the overall net profit margin for the company and investors are likely to be rewarded. However, if revenue falls further and the company isn’t able to maintain the same operational output with a lower headcount, that could spell bad news for shareholders.
These are the serious challenges facing tech investors right now. It’s a tough market for tech companies in general, and the macro economic environment with continued high inflation and the Fed trying to fight it with rising rates is really uncertain.
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