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Layoffs & ChatGPT: What’s Next for Meta’s Stock?

Plus500 | Tuesday 07 March 2023

Tech giant, Meta (META) has definitely had an interesting and volatile journey so far in 2023.  On the one hand, it made the headlines for riding the wave of big tech layoffs. On the other hand, the company was able to ascend by 48.2% since the beginning of the new year. So what is really going on with what was once among the top 10 most valuable companies in the world?

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From 2022 to Now: A Summary of Meta's Stock Trajectory

It is no secret that Meta went through a rough patch in 2022 as it lost over half of its value and was even named among 2022’s biggest losers. This is because in 2022, Meta, along with its big tech peers had to grapple with record-high inflation which often causes investors and traders to shy away from risky stocks and opt for safe-haven assets instead. In addition, Meta also reported underwhelming earnings which showed a loss in its revenue that year. This, along with an overall ailing economy, rising competition from apps like TikTok, and advertising challenges brought about by Apple’s privacy policy, may have discouraged many from investing in Meta’s stock, hence leading to the oscillation of its value. This may have led to Meta laying off approximately 11,000 employees in November 2022. 

However, despite 2022’s woes, it seems that in 2023 the fortunes may have turned for Meta as it was able to recoup some of the losses incurred last year by gaining about 48.2% and climbing to about $185. This much-needed rise may have been driven by Meta’s better-than-expected earnings report on February 2nd, 2023. The financial figures for Q4 2022 showed that its revenue, though it dropped from last year, was above analyst predictions and its sales were above estimates. In addition, the company announced it would buy back $40 billion in shares. Moreover, it is believed that cooling inflation and lower interest rates by central banks like the Federal Reserve may have also pushed the stock upward. 

Nevertheless, despite this overall optimistic growth and outlook for the new year, it was announced that Meta is planning yet another round of layoffs on Monday. (Source:The New York Times)

Why Is Meta Laying Off More Employees?

The big tech giant is reportedly laying off more employees this week in addition to November 2022’s 13% job cuts. It appears that the recent layoffs may be the result of Meta’s declining advertising revenue due to challenges arising from Apple’s privacy policy changes among other factors. Additionally, the company’s shift to the metaverse raised some concerns among traders and investors. The reason for this is that whereas Meta’s Reality Labs which advances the metaverse technology raised $727 million in revenue it also caused operation losses of $4.28 billion in the 4th quarter of last year. Furthermore, these layoffs coincide with an overall difficult period for consumer technology companies. 

As a result, following this announcement, some Meta workers revealed that colleagues may have been harboring a lack of motivation as they are anxious and apprehensive about the possibility of being laid off. Others expressed their worries about not receiving their bonuses this month in case they get laid off beforehand. And as for its stock performance following this revelation, it seems that Meta is still relatively unchanged. 

The ChatGPT Storm Reaches Meta

While the company’s layoffs may have made the headlines on Monday, the same day a potentially positive announcement was made by the Facebook, Instagram, and WhatsApp owner. It appears that after taking the markets and many big tech companies by storm, the ChatGPT and its accompanying AI frenzy have made their way to Meta. On Monday, it was announced in a Facebook post released by Zuckerberg himself, that Meta is planning to dip its toes into generative AI technology too which may be much-appreciated news among its investors and traders. 

According to Zuckerberg, the company is planning to shift its focus onto AI that’s similar to ChatGPT, and to do so it intends to gather a team that would develop tools, and social media AI personas that would elevate this experience. While how this nascent technology will play out and affect Meta’s performance is still opaque, some analysts believe that if this venture proves to be successful, it can boost Meta’s revenues and growth. In addition, some believe that if Meta generates successful AI products, it could be potentially beneficial to its profitability and can also help it expand the functionality and attractiveness of its advertising platforms.

What seems to be a more optimistic stance can be traced back to the fact that in Q4 2022, Meta’s AI endeavors drove advertisers' conversions higher by 20%, as well as reduced customer acquisition costs and increased advertising returns compared to the previous year. It is therefore possible for the advertising giant's platforms to become significantly more appealing to advertisers if an AI development initiative is successful. Nonetheless, as past performance does not guarantee future success, one needs to wait patiently for the upcoming months to see how the ChatGPT-like venture progresses. (Source:Nasdaq)

All in all, while for some, Meta’s future might seem bright, the uncertainty surrounding its growth still looms larger than ever. Whereas some analysts call its stock a buy, others may think that Meta is a sell-worthy company. The trajectory of its development should therefore be monitored to see how it unfolds.

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