By
Temitope Olatunji
April 16th, 2024
RBC Capital Markets experts believe that the staff layoff is not the solution to the numerous challenges the company is currently facing.
American tech giant Meta (NASDAQ: META) saw its shares climb 5% following the company’s announcement of workforce cuts. As the company’s stock closed 5.18%, shares are currently up 0.04% to $101.51. Meanwhile, this is not the case for many other companies that have announced staff layoffs amid the global economic meltdown. Most of the companies which were struggling to survive saw their shares plunge as news of headcount reduction hit the street. Meta’s case is different.
Meta Shares Climbs after Announcing Workforce Reduction
UBS analysts believe that Meta is making the right decision by letting go of over 11,000 employees. The analysts said cutting the workforce shows that Meta “gets it,” prompting them to reiterate their rating on the technology company’s shares. Analysts at UBS rate META a buy. Also, they are satisfied with Mark Zuckerberg‘s statement about becoming “more capital efficient,” according to the employee memo. Before now, investors have shown concern about the rising costs and expenses at Meta. The rising costs and expenses increased 19% YoY to $22.1 billion during Q3. Additionally, investors needed to find the company’s outlook for the coming quarter pleasing, leading to about a 20% fall. Apparently, a reduced workforce means reduced expenses, which has called Meta to see its shares following the announcement of the staff layoff.
The UBS analyst wrote:
“We think Meta cost reductions – across opex and capex – signals that the company hears investors, and we think the shares can move higher.”
On the other hand, analysts at RBC Capital Markets have a contrary opinion and maintain their outperforming rating on Meta. They believe that the staff layoff is not the solution to the numerous challenges the company is currently facing. Rather, the analysts said to refer to the decision as the “management’s first olive branch,” and it is at least a start. RCB analyst noted:
“While the announcement does nothing to alleviate the concerns around competition, signal loss and the perception of excessive Metaverse investment – it is the first sign the CEO has shown of being willing to acquiesce to shareholders’ desire for investing a bit more judiciously given the various headwinds the business faces.”
Analysts’ View on Meta’s Staff Layoff
Furthermore, JPMorgan (NYSE: JPM) analysts see the workforce cut at Meta as a favorable development. The analysts said the reduction could remove about $8 billion of costs on an annual basis. They believe Meta management is “operating with increased discipline” for announcing the layoff.
Except for the recent addition and a 12.07% growth in the last five days, the technology company’s stock has been amassing losses. Meta has lost over 69% over the past year.