‘Year of Efficiency’ Will Mark Zuckerberg Return to Metaplatform? The social media giant’s shares rose more than 5% to $676 each at Thursday’s high after Bloomberg reported that Mr. Zuckerberg plans to cut Metaverse spending by up to 30%. Metaverse Group is working on its virtual “Horizon World” environment and Quest series of virtual reality headsets. It’s been a while. Meta’s slump in 2022 came as the Federal Reserve aggressively raised interest rates to combat high inflation and as investors grew concerned that Mr. Zuckerberg was spending countless sums of money building virtual worlds with little idea of when he would even make a profit on his investments. Since then, Zuckerberg has wisely avoided much talk about the Metaverse. Wall Street is wondering whether the cuts to the Metaverse budget represent a real turning point for Mr. Zuckerberg, who has been spending heavily on artificial intelligence, both in capital spending and poaching AI talent to make big bucks, or if it’s a face-to-face with the reality that he’s been throwing a lot of money behind vanity projects that no one cares about. Questions about the spending have become a top concern as Meta shares have fallen more than 20% since the company’s late October earnings release on concerns that Mr. Zuckerberg has lost sight of efficiency and is preparing to keep expanding his investments without a clear view of returns. Judging by Meta’s stock rally on Thursday, the Bloomberg report allayed some of those concerns. We are reminded of the power of spending discipline. Zuckerberg has dubbed 2023 the “Year of Efficiency” and embarked on massive layoffs and cost reductions. The stock is up nearly 195% in 2023 and 65% last year. Metaverse and other VR-related investments are housed within the company’s Reality Labs business segment, along with its smart glasses. Reality Labs lost just over $4.4 billion in the last quarter alone, and Bloomberg points to losses of more than $70 billion since its inception in 2021. This article doesn’t seem to indicate that investment in smart glasses is retreating, as smart glasses appear to have more mass-market acceptance than the company’s virtual reality products. Bloomberg reports that Zuckerberg still believes in the Metaverse and thinks people will one day work and play in virtual worlds. META 5Y Mountain Meta Platform 5 Years What’s Our Take?It’s not wrong to focus on the future Metaverse, but it’s just a difficult story for investors to digest. When people hear the word metaverse, they think of a digital playground that is nothing short of an immersive video game or entertainment experience. From that perspective, skepticism about the return on investment on such a big swing is easy to understand. As club Meta shareholders, we applaud any decision to reduce spending on more ambitious aspects of the Metaverse’s vision, but we take a different view of Zuckerberg’s North Star. The technology needed to achieve his vision will continue to be invested in in a more systematic manner. Zuckerberg has chosen to focus on technologies that can be monetized more quickly, such as smart glasses and AI, while leaving behind ideas for a future Metaverse-like world. Without AI, it is impossible to run a fully immersive digital world that players/users can interact with. So instead of talking about his grand vision for the Metaverse, Zuckerberg could simply talk about AI and how it’s helping us in the moment by lowering costs, increasing engagement, and driving revenue growth. That’s a story investors aren’t willing to tell. Recently released display glasses take the idea of smart glasses to the next level without the need for most VR goggles, and are sure to help with user interaction in virtual environments. By tying that effort to screenless Ray-Ban and Oakley smart glasses, Zuckerberg has a better chance of starting to monetize the R&D investment that went into the Metaverse in the first place. We believe that Zuckerberg’s long-term view hasn’t changed all that much, and that he has learned to be more methodical in his long-term investment roadmap, while also becoming a better storyteller when it comes to these investment stories. We believe this bodes well for 2026 earnings. Perhaps cost guidance will be lowered on the next earnings release. And perhaps even more importantly given Meta’s already attractive valuation, negative sentiment has reversed since the company last reported nothing but stellar quarterly results. Mizuho analysts said in a note following the Bloomberg report that such metaverse reductions could add up to $2 to earnings per share in 2026. Assuming a price-to-earnings ratio of 20 to 25 times, we would expect the stock price to increase by $40 to $50. “The stock price has gone up, but not by as much as I would think given the fact that it’s only up 13% for the year and the P/E ratio isn’t expensive,” Jim Cramer said at Thursday’s club morning meeting. On a forward-looking basis, the stock trades at 22.3 times the 2026 full-year earnings forecast. This is in line with the S&P 500’s valuation, despite expectations that Meta could grow earnings twice as fast as the broader market next year. (Jim Cramer’s Charitable Trust is a long META. See here for a complete list of stocks.) As a subscriber to Jim Cramer’s CNBC Investment Club, you will receive trade alerts before Jim makes a trade. 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