Bottom In? Meta Platforms Surges After Earnings

Shares of Facebook owner Meta Platforms (NASDAQ:META) are up sharply higher on Thursday after the social media giant reported better-than-expected Q4 revenue and announced a $40 billion share repurchase program.

For its fourth quarter, the company reported earnings per share (EPS) of $1.76, down 52% from the year-ago period. Revenue came in at $32.17 billion in the three-month period that ended Dec. 31, down 4% year-over-year, but above the consensus estimates of $31.53 billion, according to Refinitiv.

Better-Than-Feared Report, Fundamentals Improving

The report marks the third consecutive quarter of declining sales for Meta, while its costs and expenses jumped 22% from the year-ago period to $25.8 billion. The social media business also reported 2 billion Daily Active Users (DAUs) in the quarter, just above the analysts’ expectations of 1.99 billion. The number of Monthly Active Users (MAUs) stood at 2.96 billion in the period, slightly short of the estimated 2.98 billion, according to StreetAccount.

Meta’s Average Revenue per User (ARPU) was reported at $10.86, topping the expected $10.63 per share. The tech giant reported restructuring expenses for its Family of Apps and Reality Labs businesses of $3.76 billion and $440 million, respectively.

Looking ahead, the company expects revenue in Q1 2023 in the range of $26 billion to $28.5 billion, compared to analysts’ estimates of $27.1 billion and Q1 2021 sales of $27.9 billion. If the company’s revenue reaches the higher end of its forecast range, it would mark the end of its year-over-year streak of declines.

Meta CEO Mark Zuckerberg said in a statement:

“Our community continues to grow and I’m pleased with the strong engagement across our apps. Our management theme for 2023 is the ‘Year of Efficiency’ and we’re focused on becoming a stronger and more nimble organization.”

The company said its workforce grew by 20% year-over-year to 86,482 as of Dec. 31, 2022. However, more than 11,000 of these employees are set to be laid off as announced by Meta last November.

Meta also approved a $40 billion stock buyback program on Wednesday, after purchasing $27.9 billion worth of its shares in 2022. The use of a stock buyback is believed to be one of the main reasons behind a surge in Meta stock price today as investors see this as a sign Zuckerberg is willing to focus more on shareholder value.

Still Betting Big on Metaverse

Meta also trimmed its capital expenditure outlook for this fiscal year by around $4 billion at the midpoint. The company said that “substantially all” of the estimated $30 billion to $33 billion in capital expenditure for the year will be dedicated to its legacy family of app units.

Zuckerberg also addressed the company’s investing objectives during the conference call Wednesday, describing 2023 as “the year of efficiency.” His remarks come after the company’s previous comments that it plans to pour billions of dollars into its metaverse business, which seemed somewhat tone-deaf in a tough macroeconomic environment that forced investors to focus on short-term profitability.

Just a year ago, after rebranding to become a metaverse-first company, Meta reported the first-ever decline in Facebook’s DAUs on a quarterly basis. The disappointing report raised concerns about whether the platform’s days as a social media leader were coming to an end. This, coupled with slower ad spending, sent Meta’s stock tumbling, eradicating around $600 billion of its market cap last year.

But recent events suggest that Meta’s downturn last year may be short-lived. Facebook has added new users in each of the last four quarters to a total of 2 billion DAUs. According to an earlier report by WSJ, Meta’s legacy Blue app remains at the center of its operations. Citing internal data, the WSJ report said Instagram accounts for just 30% of Meta’s total ad revenue, as opposed to expectations that it was generating as much as 50%.

As per WSJ, Meta may be finally “starting to see a path to recovery" following the ad revenue slump the company has seen since Apple’s amendment of its app tracking privacy policy. The report says Meta’s significant bets on artificial intelligence (AI) tools have allowed the company to “improve ad-targeting systems to make better predictions based on less data,” marking a huge win in its ”plan to overcome privacy change."

Meta’s executives have reportedly informed employees last year that the company is expected to recover from Apple’s policy change as early as that same quarter.

"Year on year, they are a tailwind to our business because of improvements we've made on artificial intelligence,” Meta marketing chief and VP of Analytics, Alex Schultz reportedly said in an internal meeting.

In late 2021, Apple (NASDAQ:AAPL) unveiled the “App Tracking Transparency” feature, a privacy policy that allows users to avoid tracking when using apps on their Apple devices. The move marked a major blow to ad-dependent companies, with Meta saying last year it would cost the company more than $10 billion in 2022 sales.

Summary

Meta Platforms shares are staging a massive rally on Thursday after Facebook's leadership finally managed to deliver a set of quarterly results and actions that pleased investors. A massive buyback plan, coupled with better-than-feared Q4 results, pushed shares to trade at the highest levels since July 2022.

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Shane Neagle is the EIC of The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.