Meta: ‘I expect the malaise to continue,' investor says

Independent Solutions Wealth Management's Paul Meeks joins Yahoo Finance Live to discuss the year ahead for Meta amid ongoing job cuts, innovation in the tech sector, and the long-term development expectations for AI.

Video Transcript

- Meta announced it would lay off at least 10,000 employees, its second round of steep job cuts in less than five months. It's part of CEO Mark Zuckerberg's "year of efficiency," which is focused on training staff, cranking up profitability. And his philosophy isn't limited to Meta. Other tech giants, like Tesla, Salesforce, Microsoft also slashing jobs in recent months. You can read all about it in the latest in the latest Morning Brief written by Myles Udland over at the Yahoo Finance homepage.

And joining us now to break down the latest is Paul Meeks, portfolio manager at Independent Wealth Solutions Management. And so, Paul, you've had a chance to peruse the latest data that we got out this morning as well. And we've also been talking about the Fed always fighting the last battle here. Just wondering, though, is it business as normal for Silicon Valley? Can they get back to, OK, we're going to ignore the mess in the economy and we're going to start or we're going to resume cutting jobs as normal?

PAUL MEEKS: I think we'll probably have more job cuts. Meta is a situation between last year's cut and the cut just announced. And then also taking off the table requisitions for new jobs, you're going to take about 25% of that workforce out.

Now, there have been other companies, whether they're large, mid, or small in tech that have been cutting jobs, but not to the tune of an all-in 25% workforce reduction. So that is significant. I think we'll see more of that.

And then particularly with the news from Silicon Valley Bank, what you have is a situation that before that seizure you already had very scant funding for venture capital. I expect that to continue. And when these startup firms can even get capital, it's going to be at pretty high, onerous rates. And so you will definitely see, at least in the near term, a slowdown in the paid capital to Silicon Valley's innovation machine.

In the meantime, the larger companies will continue to cut costs, the year of efficiency for probably all of them. I expect more and more of that. But what happens in a lot of things in life, the strong will get stronger. And some of these, not necessarily the FAANGs, but some of these tech companies will come out of it. You thought they're the 800-pound gorilla. Now they're the 900-pound gorilla.

- Is that a good thing, though, Paul? Right, I mean, we were just talking about consolidation of power within the banking industry and how that increases risk potentially for the whole system. How do you think about that when it comes to the tech sector in the path of innovation?

PAUL MEEKS: Well, you always need to have an innovation machine. But I think the innovation machine is humming at some of these big companies. And because they're well capitalized, they can continue to. So yes, new technologies from people that we've never heard of before, you might have a slowdown there. But when you think about all the projects, whether it's artificial intelligence or other things going on at some of these behemoths, whether they are funding startup technologies themselves through direct investment or they're cranking it out with their own R&D staffs, I don't know if we're going to miss that much of a beat.

- I'm with you on the long term there, especially when it comes to AI, the development not taking a rest. But in the short term, you consider all the startups that are not getting funding right now. What do they usually use as service providers?

We were talking to Bill Smead about this yesterday. He was saying, all right, you look at Microsoft, Amazon, which offers AWS. There's going to be a lot less demand, especially from new companies, for these services, but also for existing companies because a lot of that demand was pulled forward during the pandemic. And a lot of companies spent a gangbusters on their IT budgets. Now what? So I'm just wondering what you think of tech maybe over the next year and that horizon should the current malaise continue.

PAUL MEEKS: Oh, I expect the current malaise to continue because when you see a company like Meta and a person like Mark Zuckerberg, who used to poo-poo cost cuts and now he's with cost, it's like a dog with a bone. They're telling you that they not necessarily see a new normal or this lasts forever. But you're going to see subdued spending on both the consumer and enterprise IT for some time.

And so yes, I would expect growth rates to come down. I expect expenses to continue to be cut. I think we'll get more of that when we have the next company's rounds of earnings reports. We'll probably get those about the third or fourth week of April. But yes, I think it's going to be under pressure for some time.

Now, I'm a tech investor. So I have to invest in tech. So sometimes it's like the buy the best house in a bad neighborhood. However, if you are more broader focused, I think you should take a look at tech in your portfolio. And I would advocate a underweight position, a underweight position until we've cleared all the bad news. And I just don't think we've cleared it yet.

- Just real quickly on Meta specifically, Paul, has the company slashed enough? Has that specific company slashed enough at this point to start to get attractive to you?

PAUL MEEKS: Yeah, I actually think now the company is going to earn I think fairly easily $10 a share. It's trading at 19 times. That's in line to slightly higher than the market. And I think over time, it will have, as we get through a recession and digital advertising returns, a growth profile better than the average US company. So I think it is pretty attractive here.

I can't calibrate what's going to happen with Credit Suisse and the rollout with the rest of these banks. Right now it's a macro, not micro-driven market. It's probably more interesting for even Meta's shareholders to look at the macro versus what's going on at the company.

But they have reduced and will continue to reduce. And I actually think the stock is pretty attractive here. I would like to see them, besides cost cutting and operational expense reductions, I'd like to see them do something with Reality Labs because Reality Labs is the portion of the business that is a real cash burn. I'd like to see them slow down spending there. And

Then you have cost efficiencies on the operating side and also cost efficiencies on their-- let's call it a venture capital outfit with inside the firm. Then Meta gets really interesting. But right now, I think it's pretty good.

- All right, interesting stuff from you, Paul Meeks. Thanks so much for being here. It's always good to catch up with you, Independent Wealth Solutions Management Portfolio Manager Paul Meeks.