Investor Gerstner calls on Meta Platforms to slim down and focus

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Hedge fund investor Brad Gerstner and his Altimeter Capital have gone public with a call on Meta Platforms (NASDAQ:META) to downsize, limit its metaverse adventures and otherwise "get its mojo back."

In an open letter to CEO Mark Zuckerberg and the board, Gerstner says he's a supporter of Meta but "with some hesitation, but significant conviction," he's strongly encouraging Meta to streamline and focus.

"Like many other companies in a zero rate world — Meta has drifted into the land of excess — too many people, too many ideas, too little urgency," Gerstner writes. "This lack of focus and fitness is obscured when growth is easy but deadly when growth slows and technology changes."

The company lost investor confidence, he says, with the conventional wisdom holding that Meta "hit a wall last fall."

The stock's tumble has left price/earnings ratio at less than half that of peers, with the drop marking "lost confidence" and not just "the bad mood of the market."

Gerstner is pushing a three-step plan to double free cash flow to $40B per year and focus teams and investments: (1) reduce headcount expense by 20% (at least); (2) cut annual capital expenditures by at least $5B (to $25B from $30B); and (3) limit investments in the metaverse and its Reality Labs unit to "no more than $5B per year."

Instead of focusing on a strong core business, Meta has put $10B-$15B into the metaverse and that might take 10 years to show results; "An estimated $100B+ investment in an unknown future is super-sized and terrifying, even by Silicon Valley standards."

Pursuing those steps would result in boosting free cash flow by at least $20B in 2023, Gerstner says.

Meta stock is down 3.3% early Monday, tacking on to a 63% year-to-date decline. The company reports earnings after the closing bell Wednesday, with consensus expectations for adjusted earnings per share of $1.89 on revenues of $27.43B (a 5.5% year-over-year decline). Earlier, BofA downgraded the stock on concerns about pressure on ad spending.