Caution! Why the META Stock Rally Is Misleading.

Stock Market

Even though Meta Platforms (NASDAQ:META) stock is up sharply year-to-date, investors need to be careful now. Meta Platforms’ latest layoffs could be a sign of trouble. Also, Meta Platforms will have to pay a high price for failing to abide by data-privacy rules in the United Kingdom.

Meta Platforms is involved in multiple different technology fields this year. Not only is the company focused on social media and the metaverse, but Meta Platforms plans to “build the next generation” of its “infrastructure backbone — specifically built for” artificial intelligence (AI).

That’s a full plate for Meta Platforms, especially as CEO Mark Zuckerberg famously declared that 2023 will be a “year of efficiency” for his company. It seems, then, that there may be some tension between Meta Platforms’ high ambitions and the company’s financial and regulatory challenges. Ultimately, as we’ll discover, there are reasons for prospective investors to be wary of META stock now.

Meta Platforms Implements Another Round of Layoffs

Consider this: If Meta Platforms is in a great financial position to build an AI infrastructure “backbone,” shouldn’t the company be expanding? Instead, Meta Platforms is actually contracting. Specifically, Meta Platforms plans to slash roughly 20% of its workforce in Ireland.

As Meta Platforms cuts around 490 jobs in Dublin, this represents another round of global layoffs for the company. Maybe this is part of Zuckerberg’s drive for “efficiency” in 2023. Bear in mind, though, that with fewer employees, Meta Platforms may end up sacrificing quality and efficiency in its sales and marketing, analytics, engineering and other departments.

All in all, it’s just not a positive sign that Zuckerberg still feels the need to reduce its workforce. Does this mean Meta Platforms is having financial problems? It’s a question worth considering. Moreover, Reuters reports that Meta Platforms has “cut employees from its units focused on privacy and integrity.” That might not be such a great idea, considering the company’s problems in the U.K., which we’ll discuss right now.

META Stock Runs Hot Despite Regulatory Issues

META stock has gone on a tear in 2023 so far. However, a pullback may be due, as Meta Platforms is taking a big hit, both financially and in terms of its reputation. That’s because Ireland’s Data Protection Commissioner (DPC) has fined Meta Platforms a whopping 1.2 billion euros ($1.3 billion) for data-privacy rule violations.

This represents a record fine for the E.U. privacy regulator. Allegedly, Meta Platforms violated an E.U. court ruling by transferring user data to the U.S. This could be a long, expensive battle as Meta Platforms reportedly intends to appeal the DPC’s ruling.

All of this could have severe financial implications for Meta Platforms. The company has already warned that if it has to cease offering its products/services in Europe, this “would materially and adversely affect our business, financial condition, and results of operations.” So, investors should continue to monitor Meta Platforms’ legal standing in the E.U., as this is vitally important.

There’s No Need to Be Hasty With META Stock

Meta Platforms appears to be having problems that some investors aren’t acknowledging. It’s a recipe for disaster, as the Meta Platforms share price may have run too far, too fast this year.

Additionally, financial traders should pay close attention to the Meta Platforms layoffs. They could be a sign that the company isn’t in a solid financial position. Maybe the company won’t be able to fund its AI infrastructure ambitions in 2023.

That would be disappointing, so now’s not a time to be overeager with META stock. The best strategy is to let the share price drop 10% to 15%. Then, you can consider buying the stock if you’re still interested.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.

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