Meta Attracts Bullish Option Trade Amid Reports of Metaverse Cost Cuts
$Meta Platforms, Inc.(META)$
Shares rose as much as 5.7% Thursday after Bloomberg reported that CEO Mark Zuckerberg is looking at cuts of as much as 30% on a business segment that investors viewed to be a drain on the company's financial resources.
That cut could lower Meta's operating expenses by between $5 billion and $6 billion, Bloomberg Intelligence analysts Mandeep Singh and Robert Biggar wrote in a note Thursday.
At 9:39:49 a.m. in New York Thursday, an active seller earned a $6.7 million premium for unloading put options that could give their holders the right to sell 100,000 Meta shares at $710 in 78 days. That is the third biggest bullish stock option trade so far, behind $Amazon.com(AMZN)$
That bullish Meta trade would be profitable for the seller should the stock climb well above that strike price, from its current level of $666.19, allowing the contract to expire worthless.
The seller of those put options isn't the only one bullish on Meta's stock. More than 90% of the analysts who cover the stock have a buy rating on Meta, with an average price target of $857.43, implying an upside potential of more than 25% for a stock that has already more than doubled in the past two years.
Cost cuts, along with the company's potential use of $Alphabet-A (GOOGL.US)$'s tensor processing units (TPUs), instead of its own application-specific chip (ASIC) could improve Meta's free cash flow by $10 billion to $12 billion from previous Wall Street consensus, Bloomberg Intelligence analysts said.
The spending cuts could help cushion the impact from the company's capital spending on artificial intelligence of as much as $110 billion, the analysts said. Before the cost cuts, the company was expected to positive negative free cash flow as its burgeoning spending on AI drains its finances.
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