Meta Stock Rallies on Job Cuts. Zuckerberg Is Finally Listening to Wall Street.

Mark Zuckerberg finally caved.

The Meta Platforms founder and CEO announced Wednesday morning that the company is cutting about 11,000 jobs, reducing head count by 13%. Meta shares, which have been sliding all year, have rallied 6.8% on the news, which suggests that the parent of Facebook, Instagram and WhatsApp has finally accepted that it needs to take steps to shore up its struggling business.

The stock plunged 25% following the company’s recent third-quarter earnings report, largely because of a stunning projection for higher operating and capital expenses for 2023. A few days before Meta reported results, Altimeter Capital founder Brad Gerstner wrote an open letter to Zuckerberg urging him cut spending.

“Meta has drifted into the land of excess,” he wrote. “Too many people, too many ideas, too little urgency.”

Wednesday’s announcement suggest that Zuckerberg is finally paying attention to investors’ concerns, much to the relief of investors and analysts alike.

“At the start of Covid, the world rapidly moved online and the surge of e-commerce led to outsized revenue growth,” Zuckerberg said in a letter to Meta’s employees. “Many people predicted this would be a permanent acceleration that would continue even after the pandemic ended. I did too, so I made the decision to significantly increase our investments. Unfortunately, this did not play out the way I expected.”

The CEO said that not only has online commerce returned to prior trends, but the weakening economy, increased competition, and “ads signal loss” have left Meta with much less revenue than he expected. “I got this wrong, and I take responsibility for that,” he wrote.

The question investors now face is whether Zuckerberg is doing enough to address the company’s new reality, which includes more intense competition for ad dollars from TikTok, Amazon.com (AMZN), Apple (AAPL), Netflix (NFLX), and others; a softening advertising environment; and the lingering effects of Apple’s focus on protecting the privacy of iPhone users. Worries remain that the company’s huge push to build the metaverse won’t ever generate a payoff.

In addition to the layoffs, Meta confirmed its forecast for fourth-quarter revenue of $30 billion to $32.5 billion. Meta said the outlook for 2022 expenses it provided on the call to discuss its latest earnings already contemplated the newly announced cuts, and remains unchanged at $85 billion to $87 billion.

But the company also said it now sees 2023 expenses of $94 billion to $100 billion, which compares with a previous forecast of $96 billion to $101 billion, reflecting reduced hiring plans for next year. That amounts to a $1.5 billion cut, based on the midpoints of those ranges.

Capital spending in 2023 is expected to be between $34 billion and $37, the company said, reducing the top end of the forecast range from $39 billion. Meta also confirmed that it expects operating losses in Reality Labs, the business segment that includes VR headsets and the metaverse, to “grow significantly” in 2023 from 2022.

Analysts, particularly those who are bullish on Metal stock, reacted to the news with relief.

“Meta and Zuckerberg heard loud and clear the massively negative investor reaction to perceived lack of cost discipline during the Q3 EPS results…and have pivoted,” Evercore ISI analyst Mark Mahaney wrote in a research note. “It is clear to us that a lack of cost discipline is far and away the #1 issue weighing on Meta shares…and we think today’s news directly addressed this concern.” Mahaney kept an Outperform rating on the stock, with a target of $170 for the price.

Shares were near $103 on Wednesday afternoon, leaving them down 69% so far this year.

RBC Capital analyst Brad Erickson calculates that the operating-expense reduction connected with the job cuts could boost 2023 profits by 45 cents a share, while lower capital spending could add another 5 to 7 cents a share.

“While this 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,” Erickson said in a research note. Erickson maintained his Outperform rating and $150 target price on the stock.

J.P. Morgan analyst Doug Anmuth, who continues to rate Meta stock at Neutral, wrote that while he had hoped to see the 2023 expense outlook come down more, “the workforce reduction overall is likely bigger than most people had expected and shows management is operating with increased discipline.”

MKM Partners analyst Rohit Kulkarni expressed a similar view, saying that while the layoff were painful and might be demoralizing for the remaining staff, the cuts are a step in the right direction and show that “Zuckerberg cares about near-term investor expectations.” Kulkarni kept a Buy rating on the stock with a target of $140 for the price.

As Paris makes its final preparations for the Olympic games, its residents are busy with their own—packing their suitcases, confirming their reservations, and getting out of town.

Worried about the hordes of crowds and overall chaos the Olympics could bring, Parisians are fleeing the city in droves and inundating resort cities around the country. Hotels and holiday rentals in some of France’s most popular vacation destinations—from the French Riviera in the south to the beaches of Normandy in the north—say they are expecting massive crowds this year in advance of the Olympics. The games will run from July 26-Aug. 1.

“It’s already a major holiday season for us, and beyond that, we have the Olympics,” says Stéphane Personeni, general manager of the Lily of the Valley hotel in Saint Tropez. “People began booking early this year.”

Personeni’s hotel typically has no issues filling its rooms each summer—by May of each year, the luxury hotel typically finds itself completely booked out for the months of July and August. But this year, the 53-room hotel began filling up for summer reservations in February.

“We told our regular guests that everything—hotels, apartments, villas—are going to be hard to find this summer,” Personeni says. His neighbours around Saint Tropez say they’re similarly booked up.

As of March, the online marketplace Gens de Confiance (“Trusted People”), saw a 50% increase in reservations from Parisians seeking vacation rentals outside the capital during the Olympics.

Already, August is a popular vacation time for the French. With a minimum of five weeks of vacation mandated by law, many decide to take the entire month off, renting out villas in beachside destinations for longer periods.

But beyond the typical August travel, the Olympics are having a real impact, says Bertille Marchal, a spokesperson for Gens de Confiance.

“We’ve seen nearly three times more reservations for the dates of the Olympics than the following two weeks,” Marchal says. “The increase is definitely linked to the Olympic Games.”

Worried about the hordes of crowds and overall chaos the Olympics could bring, Parisians are fleeing the city in droves and inundating resort cities around the country.
Getty Images

According to the site, the most sought-out vacation destinations are Morbihan and Loire-Atlantique, a seaside region in the northwest; le Var, a coastal area within the southeast of France along the Côte d’Azur; and the island of Corsica in the Mediterranean.

Meanwhile, the Olympics haven’t necessarily been a boon to foreign tourism in the country. Many tourists who might have otherwise come to France are avoiding it this year in favour of other European capitals. In Paris, demand for stays at high-end hotels has collapsed, with bookings down 50% in July compared to last year, according to UMIH Prestige, which represents hotels charging at least €800 ($865) a night for rooms.

Earlier this year, high-end restaurants and concierges said the Olympics might even be an opportunity to score a hard-get-seat at the city’s fine dining.

In the Occitanie region in southwest France, the overall number of reservations this summer hasn’t changed much from last year, says Vincent Gare, president of the regional tourism committee there.

“But looking further at the numbers, we do see an increase in the clientele coming from the Paris region,” Gare told Le Figaro, noting that the increase in reservations has fallen directly on the dates of the Olympic games.

Michel Barré, a retiree living in Paris’s Le Marais neighbourhood, is one of those opting for the beach rather than the opening ceremony. In January, he booked a stay in Normandy for two weeks.

“Even though it’s a major European capital, Paris is still a small city—it’s a massive effort to host all of these events,” Barré says. “The Olympics are going to be a mess.”

More than anything, he just wants some calm after an event-filled summer in Paris, which just before the Olympics experienced the drama of a snap election called by Macron.

“It’s been a hectic summer here,” he says.

Hotels and holiday rentals in some of France’s most popular vacation destinations say they are expecting massive crowds this year in advance of the Olympics.
AFP via Getty Images

Parisians—Barré included—feel that the city, by over-catering to its tourists, is driving out many residents.

Parts of the Seine—usually one of the most popular summertime hangout spots —have been closed off for weeks as the city installs bleachers and Olympics signage. In certain neighbourhoods, residents will need to scan a QR code with police to access their own apartments. And from the Olympics to Sept. 8, Paris is nearly doubling the price of transit tickets from €2.15 to €4 per ride.

The city’s clear willingness to capitalise on its tourists has motivated some residents to do the same. In March, the number of active Airbnb listings in Paris reached an all-time high as hosts rushed to list their apartments. Listings grew 40% from the same time last year, according to the company.

With their regular clients taking off, Parisian restaurants and merchants are complaining that business is down.

“Are there any Parisians left in Paris?” Alaine Fontaine, president of the restaurant industry association, told the radio station Franceinfo on Sunday. “For the last three weeks, there haven’t been any here.”

Still, for all the talk of those leaving, there are plenty who have decided to stick around.

Jay Swanson, an American expat and YouTuber, can’t imagine leaving during the Olympics—he secured his tickets to see ping pong and volleyball last year. He’s also less concerned about the crowds and road closures than others, having just put together a series of videos explaining how to navigate Paris during the games.

“It’s been 100 years since the Games came to Paris; when else will we get a chance to host the world like this?” Swanson says. “So many Parisians are leaving and tourism is down, so not only will it be quiet but the only people left will be here for a party.”