Quick take:
- A Meta shareholder has penned an open letter asking the company to cut spending on the metaverse.
- Altimeter Capital chairman and CEO Brad Gerstner said the social media conglomerate has too many employees.
- Meta shares pulled back 3.5% in the early afternoon after Bank of America downgraded from Buy to Neutral.
Shareholders are piling pressure on Meta Platforms (NASDAQ: META) to cut spending after one invested penned an open letter addressed to the company and CEO Mark Zuckerberg asking it to move fast to restore investor confidence.
Altimeter Capital chairman and CEO Brad Gerstner also said the social media conglomerate has too many employees.
Meta reported $48.5 billion in operating expenses for the fiscal year 2021, up from $36.6 billion in 2020. According to the most recent quarterly results, Meta’s operating expenses currently stand at a whopping $56.2 billion for the past twelve months.
The investor recommends that Meta should try to get its “mojo” back by cutting staff costs by 20% and limiting its expensive investment in metaverse technology VR software and hardware — to no more than $5 billion per year. The metaverse is a 3D virtual space that allows people to interact through gaming, socializing, virtual concerts and other experiential events.
Meta sees the metaverse as the next frontier of social interactions, which is why it rebranded from Facebook as a commitment to its new strategic plan.
“Meta needs to rebuild trust with investors, employees and the tech community to attract, inspire and retain the best people in the world,” Gerstner wrote in the letter. “In short, meta needs to get fit and focused.”
Since launching its metaverse strategy in October 2021, Meta has spent more than $15 billion, according to a recent report by Business Insider.
Meta shares have plummeted more than 61% in 2022 amid several obstacles preventing it from actualising its metaverse plan.
Last week, the company was asked by the UK antitrust authorities to sell the GIF creation platform Giphy. Earlier in the week, the Wall Street Journal obtained internal documents detailing Meta’s struggle to onboard permanent users to its metaverse platform Horizon Worlds.
The company is also facing a lawsuit from the Federal Trade Commission in the US, which seeks to block its acquisition of virtual reality company Within amid fears it will make the Facebook parent too powerful in a burgeoning industry.
All these factors have contributed— to a greater degree— to the company’s woeful situation. On Monday, the Bank of America downgraded Meta stock from a Buy rating to a Neutral rating citing in-line ad revenue prospects for Q4 and full-year 2023.
Analyst Justin Post also said they expect advertiser budget cuts to weigh on the market sentiment. BofA issued a renewed Meta price target of $150 per share, down from $190. Post also expects the metaverse investment to remain a stock overhang, putting more pressure on the pricing.
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