Meta Platforms Looks to Build Efficiency in 2023

Meta Platforms CEO Mark Zuckerberg has declared 2023 as a "year of efficiency," and his efforts are being rewarded by the market. Although the cost-cutting drive is coming to an end, Wall Street remains optimistic, unfazed by a potential return to Meta's big-spending ways.

During Meta's recent earnings announcement, executives revealed plans to increase their payroll in 2024. The objective is to hire highly skilled employees who will contribute to the development of artificial intelligence technology within the Facebook-owned company.

Despite a 3.1% dip in premarket trading on Thursday, with Meta shares reaching $290.33, analysts remain bullish regarding its future plans.

KeyBanc analyst Justin Patterson reflects on the company's statements about a potential acceleration in operating expenses due to a hiring backlog. However, he interprets Meta's core message as an intention to grow its workforce at a slower rate in the future.

In light of this positive outlook, Patterson has raised his target price on Meta stock from $356 to $380 and maintains an Overweight rating on the stock.

It is worth noting that Meta faced negative reactions from investors and analysts in 2022 when it announced plans to invest in the Metaverse. However, there is more enthusiasm surrounding AI spending. Meta foresees its capital expenditure rising from $27 billion-$29 billion this year to a range of $30 billion-$35 billion next year.

Meta's AI Ambitions and Advertising Outlook

UBS analyst Lloyd Walmsley expressed optimism regarding Meta's capital expenditure (capex) guide and the potential impact of generative AI on the company. In the fourth quarter, Meta plans to introduce a range of new AI tools that could serve as a near-term catalyst.

As a result, Walmsley increased his target price for Meta's stock to $425 from $415, maintaining a Buy rating.

Meta heavily relies on advertising revenue to fund its AI aspirations, which constitutes its core business. The company warned of a potential short-term decline in advertising demand, perhaps due to the Israel-Hamas conflict, leading to a decline in the stock's value during after-hours trading on Tuesday. However, experts are generally optimistic about the long-term advertising outlook following similar positive signals from Google-parent Alphabet (GOOG) and social-media peer Snap (SNAP), both indicating an ad rebound.

Meta continues to experience healthy user growth, with a reported 31% increase in ad impressions. This metric measures how frequently an ad is displayed within an app and highlights Meta's emphasis on monetization, as noted by Third Bridge analyst Scott Kessler.