Cramer: I was wrong about Meta, never thought Zuckerberg would spend without any discipline

Published Thu, Oct 27 202210:14 AM EDTUpdated Thu, Oct 27 202211:03 AM EDT

Kevin Stankiewicz @in/kevin-stankiewicz-b5593466 @kevin_stank

Jim Cramer on Thursday apologized for thinking Meta Platforms (META) would be disciplined on expense growth during this period of economic uncertainty. "I made a mistake here. I was wrong. I trusted this management team. That was ill-advised," Cramer said. "The hubris here is extraordinary, and I apologize." Cramer's expression of regret came as shares of Club holding Meta plunged in premarket Thursday, falling more than 23% to below $100 apiece. Investors were dumping the stock after Meta's third-quarter earnings missed expectations Wednesday evening and its fourth-quarter guidance was lighter than anticipated. The parent company of Facebook and Instagram also disappointed many on Wall Street with its expense outlook for 2023 — between $96 billion and $101 billion, an increase compared with this year. At the same time, the company expects operating losses in its experimental metaverse division called Reality Labs to "grow significantly" next year compared with 2022. Meta received a flurry of downgrades Thursday , including from analysts at Morgan Stanley, Cowen and KeyBanc. All three of those firms now rate the stock the equivalent of hold from buy. Some firms that already were neutral on the stock slashed their price targets. "META remains a business in transition, with investment levels out of sync from the operating environment," Piper Sandler wrote in a note to clients, taking its price target down to $116 per share from $175 and maintaining its hold rating. Cramer echoed that concern, lamenting Meta's free cash flow in the third quarter after the company spent heavily on property and equipment investments. Meta's free cash flow in the third quarter totaled $173 million, down from $4.45 billion in the second quarter and $8.53 billion in the first quarter. "This situation is almost a rogue situation," Cramer said. "I had thought there'd be an understanding that you just can't spend and spend right through your free cash flow, that there had to be some level of discipline," Cramer said. "Was I too close to the company? I did not think the company would be as ill-advised as to spend through what they have, without any discipline whatsoever," Cramer said. Meta's third-quarter expenses and guidance was pretty much "the opposite" of what people had been expecting the company to do, Cramer added later during the Club's "Morning Meeting" on Thursday After all, CEO Mark Zuckerberg said back in July after the Q2 release that the economic downturn is here and Meta will need to do more with less. More recently, there had been reports in recent weeks that Meta was looking to cut costs , in which case there could be some support for earnings even as the economic slowdown pressures topline revenue. The company's expense outlook complicates that view and contributed to the Club downgrading its rating on Meta shares to a 2 rating from a 1. (Jim Cramer's Charitable Trust is long META . See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Mark Zuckerberg, CEO of Meta, speaks during the virtual Facebook Connect event, where the company announced its rebranding as Meta, in New York, Oct. 28, 2021.

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