Meta Platforms Inc (META)

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Morgan Stanley Reiterates Overweight on Meta on Cost-Cutting Efforts, Says Amazon Likely to Follow Next
By: Investing.com | May 16, 2022

Morgan Stanley analyst Brian Nowak has reiterated an Overweight rating on Meta Platforms Inc (NASDAQ:FB) and a $330.00 per share price target.

Multiple reports noted recently that Meta has taken a more conservative approach to costs and staff growth. Nowak estimates that FB's potential hiring freeze could add 4%-16% to '22 FCF/share, which translates into a 7% yield.

“We know this is a bull case, but if that is the case, FB may be trading at a ~7% '22 FCF yield. GOOGL, the other leading (and more owned) tech platform in the group, currently trades at a ~5% '22 FCF yield. We remain OW FB even without incorporating these potential cuts...but are even more encouraged by these changes as we see the combination of 2H revenue acceleration (in part driven by modest incremental contribution from Reels monetization off strong engagement trends, see here) and cost discipline leading to significant FCF,” Nowak said.

The analyst also believes that Amazon (NASDAQ:AMZN) could be the next big tech company to slash costs, especially taking into account the company’s $6 billion spend on "other bets.”

“AMZN is taking appropriate steps to moderate hiring/build after over-hiring and over building, but in our view AMZN's estimated $6bn in annual engineering spend on emerging/science projects has potential for more. In our view, this focus on discipline could be particularly important as AMZN still does not screen as being "inexpensive" on FCF in this increasingly FCF focused market. We estimate AMZN currently trades at a 1%/3% '22/'23 FCF yield,” Nowak concluded.

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