Wall Street analysts rerated Meta Platforms Inc (NASDAQ: META) after the company said that it is considering cutting up to 30% of its 2026 Metaverse budget, primarily targeting the Quest virtual reality unit and Horizon Worlds, which account for the bulk of metaverse-related investment.
- JPMorgan analyst Doug Anmuth maintained an Overweight rating on Meta with a price forecast of $800.
- Bank of America Securities analyst Justin Post reiterated a Buy rating on Meta with a price forecast of $810.
JP Morgan: Anmuth projected total Reality Labs spending of $21 billion in 2025 and $26 billion in 2026.
Assuming metaverse accounts for roughly 50–60% of Reality Labs spending and glasses/Orion make up the remaining 40–50%, a 30% reduction in metaverse spending could save up to $5 billion, the analyst noted.
If these savings came entirely from headcount, and assuming an average cost of $350,000–$400,000 per employee, Meta could reduce staff by approximately 11,000–13,000, representing 15–17% of its third-quarter ending workforce, he told.
The Bloomberg article also noted that Meta's budgeting process is targeting 10% cuts across the board, although Anmuth pointed out that similar reductions have been requested in previous years.
The analyst emphasized the need to maintain guardrails for GAAP EPS growth, operating income expansion, and positive free cash flow during the company's heavy capex investments.
He expected operating expense savings to help moderate the "significantly faster" expense growth Meta flagged in its third-quarter earnings report and to support funding for capex and depreciation.
Anmuth is not adjusting his estimates at this time, projecting total 2026 expenses of $153 billion (up 30%) and capex of $115 billion (up 61%).
Bank of America Securities: Post noted that CEO directives are also prompting executives to identify 10% expense reductions across other functional areas, consistent with prior-year planning exercises.
The analyst highlighted that since Meta's third-quarter of 2025 earnings, when the company flagged that total expenses would rise "significantly" faster in 2026 than in 2025, the stock has fallen 11% while the S&P 500 remained flat.
He said today's news could shift assumptions about expense growth in 2026 and 2027 and reinforces the view that Meta remains financially disciplined.
Post estimates that Reality Labs will generate about $2.2 billion in revenue, $21 billion in expenses, and a net loss of roughly $18.5 billion in 2025.
He noted that a 30% reduction in Reality Labs spending could save $6–6.5 billion, which translates to roughly $2 per share in after-tax EPS—about 6–7% upside to the Street's 2026 EPS estimate of $29.74.
Across the rest of the business, a 10% cost reduction could yield an additional $10 billion in savings, though he expects these cuts will likely be reallocated to data center and AI investments.
Post emphasized that while overall costs are still expected to grow materially in 2026, Meta appears to have flexibility in cost allocations to protect EPS growth even amid macroeconomic pressures.
He said this shift in Reality Labs spending is constructive for sentiment, as it addresses investor concerns about long-term Metaverse investments.
Looking ahead to 2026, Post sees multiple growth drivers—including increased usage, AI enhancements, monetization ramps in Short-Form Video and messaging, and new ad opportunities across Threads, Meta AI, and Marketplace—that could boost revenue beyond Street estimates.
He highlighted key upcoming catalysts: the launch of Meta Business AI, a new frontier model expected mid-2026, and a new wave of user-facing AI products leveraging Meta's LLM in the second half of 2026.
Post expects Meta could initially guide 2026 expenses to grow 28–38% year over year, maintaining flexibility to adjust spending based on revenue performance.
Price Action: Meta stock traded 1.63% higher to $672.39 at last check on Friday.