Meta Platforms (NASDAQ:FB) is reportedly cutting spending in its Reality Labs, which when combined with reports of slower hiring, is “consistent” with the company’s lower expense outlook it gave recently, investment firm Bank of America said.
Analyst Justin Post, who maintained his buy rating and per-share price target of $262 on Meta Platforms (FB), noted that some are wondering whether the slow down in spending and hiring are incremental to the revised expense outlook of $87 billion to $92 billion that the company gave last month, but it’s likely just a part of that.
“For now, we think the hiring slowdown is consistent with revised expense outlook, which included comments on slowing the pace of [Reality Labs] investments, vs material change in advertising outlook (which could lead to layoffs),” Post wrote in a note to clients, adding that the cuts “highlight [the] need to prioritize profits to support stock prices in the current environment.”
Meta Platforms (FB) shares rose nearly 1.5% to $194 in premarket trading on Friday.
In addition, Post noted that the slowdown in expenses and hiring are not just being experienced by Meta (FB), but rather across the tech sector, highlighting reports that Uber Technologies (UBER) is going to undergo some belt tightening in order to focus on profitability.
“An important question for investors, in our view, is if these cost cutting measures expand across the economy, leading to an increasing chance of a recession,” Post added.
The analyst noted that Meta Platforms (FB) and Alphabet (GOOG) (GOOGL) have the “best earnings stability” among internet advertising companies, and it’s likely that both companies will actually grow earnings if the economy experiences a mild to moderate recession and there is little to no revenue growth.
On Thursday, Bank of America highlighted Meta Platforms (FB) as a stock to buy that has fallen severely over the past several weeks amid the stock market correction.