It's hard to believe that less than two years ago Mark Zuckerberg's social media company, dubbed Facebook, changed its name to Meta Platforms (META 0.71%) and seemingly changed its roadmap to go all-in on the metaverse

Following the name change in October 2021, Meta went on a hiring frenzy and invested aggressively in marketing and product development. However, after a couple of consecutive earnings reports showcasing heavy burn rates and slower-than-anticipated revenue growth, investors let Meta know how they felt. The company's stock plummeted over 60%, prompting Zuckerberg and his leadership team to make some changes. 

During Meta's fourth-quarter 2022 earnings call in February, Zuckerberg declared 2023 the "year of efficiency." In short, Meta vowed to turn its revenue focus back to advertising and made it clear that cost-cutting initiatives, chiefly in the form of layoffs, would be an ongoing exercise until the company was back on track. 

While this is all encouraging to hear, Meta's stock is up 136% year to date at the time of this article. As Q2 earnings loom, investors may be wondering if the stock has any more room to go up or if it's overbought. In this article, I will explain why I believe Meta is a compelling buy before its Q2 earnings report later this month.

A recap of all the moving pieces

One of the main focus areas of Meta's "year of efficiency" was reducing headcount. The company explained to investors that these layoffs would occur in multiple stages.

During Meta's Q1 earnings call, the company told investors that it had 77,114 employees as of March 31. While this figure was net of the first round of layoffs, which occurred in November 2022, it still included employees who were notified that they were being let go in early 2023.

Looking at Meta's income statement, it can be a little misleading trying to figure out the impact of these cost-reduction efforts. For the quarter ended March 31, Meta's costs and expenses totaled $21.4 billion, an increase of 10% year over year.

However, it's important to note that this includes a $1.1 billion restructuring charge related to the headcount changes. Even if you back this out, it's clear that Meta still grew its costs year over year and has more work to do.

During the Q1 earnings call, Susan Li, Meta's CFO, assured investors that the company would also be cutting headcount throughout April and May.

Corporate executives making decisions in a board room.

Image source: Getty Images.

Playing chess when others are playing checkers

There is no doubt that Meta has been under scrutiny for much of 2023. By going all-in on an unproven market, the metaverse, only to pivot back and focus on advertising and to admit that the company overhired is a recipe for losing investor faith.

For these reasons, it's hard to believe that Meta has had any time to focus on anything other than getting back on a path to growing revenue and profits. However, despite his polarizing reputation, Mark Zuckerberg has a knack for innovation and always seems to find a way to win investors over. 

Big Tech rival Apple held its much-anticipated developer conference on June 5. Days before the event, rumors were swirling that Apple would be announcing a brand new product: a virtual reality (VR) headset.

So, what did Zuckerberg do? He announced the release of Meta's new virtual reality (VR) headset just days prior to Apple's event. Given that Apple did in fact announce that it would be selling a VR product, Meta's announcement was clearly meant to be a gut punch to its Silicon Valley rival. 

On top of all of this, July has gotten off to a hot start for Meta. The company's latest development is its competitor to social media giant Twitter. Per the company's website, Meta's new product, called Threads, is "for sharing text updates and joining public conversations." Sounds a lot like Twitter to me.

What's more is that journalists are reporting that Threads already had 70 million downloads worldwide -- in just two days.

As an investor, I am beyond pleased with both of these announcements. For several months, all I could think about was Meta getting back on a path to growing profits and doing so by tightening its belt on expenses.

Now, in just the last couple of weeks, I've learned that Meta has new VR hardware ready to be shipped and has possibly unlocked a totally new avenue to generate advertising revenue via Threads. 

Is the stock a buy before earnings?

Since Meta's Q1 earnings report on April 26, the company's stock is up about 40%. And that's on top of a rally of more than 60% from January trading levels. With all of this positive momentum pushing the stock, it's hard to believe that it can go any higher.

Wall Street analysts from Citi, UBS, Oppenheimer, and KeyBanc all have price targets between $335 per share and $360 per share, implying upside of up to 23% from current trading levels.

While this seems aggressive, it makes sense. As I pointed out above, one of the main things investors should be aware of is that Meta has been reducing headcount throughout 2023, and the bulk of these savings is yet to be recognized in the financials.

For this reason, Q2 should really highlight a lot of Meta's cost-cutting efforts. More specifically, investors should be laser focused on the reported headcount figure and more importantly, on net income and earnings per share.

With the addition of the company's new product innovations, coupled with its cost-reduction efforts coming to fruition, it's hard to see a scenario in which the stock declines significantly in the near term.

Meta appears to have really turned the ship around in a relatively short amount of time. Long-term investors should be eager to scoop up shares of Meta before the earnings report in late July. All signs are pointing to this moment as a rare opportunity to buy the stock before it rises even higher.