Job cuts should help to further contain expenses growth. META announced that it would be laying off ~10,000 people (~12% of current workforce), and will also be eliminating another ~5,000 vacant job positions as it continues to streamline its workforce and contain its expenses. YoY headcount growth has been declining over the last 3 quarters – as YoY revenue has begun to contract, and we do expect this to drop drastically for 1Q23e as the job cuts take into effect, especially compared with 1Q22 when hiring was still rampant with headcount growth around 27%. OPEX growth is expected to drop as well, although not as significant given the anticipation of sizeable severance-related charges. META incurred restructuring charges of US$4.2bn in 4Q22 after it performed similar cost-cutting initiatives – US$3.2bn from the consolidation of facilities and restructuring of data centre assets, and US$1bn in severance-related charges.
Maintain NEUTRAL with a raised target price of US$200.00.
As a result of the planned job cuts, we reduce FY23e OPEX by ~3% to be roughly in line with FY22 levels. FY23e EBITDA margins are increased by 120bps to 37.0% due to the reduction in OPEX, offset slightly by expected severance-related charges, with net margin also increased by 100bps to 22.8%. We maintain NEUTRAL with a raised DCF target price of US$200.00 (prev. US$182.00), a WACC of 7.1%, and a terminal growth rate of 3.5%.