Meta Platforms shares surge as Zuckerberg promises sharper focus on returns

© Reuters Meta Platforms shares surge 17% on Q4 revenue beat while profits fall 55%

By Davit Kirakosyan and Geoffrey Smith

Meta Platforms (NASDAQ:META) stock was on course for its highest opening in eight months, after reporting a rebound in profits and promising a big step up in shareholder returns.

The company said it will buy back another $40 billion of stock and cut its forecast for operating costs by around 7%, as Zuckerberg signaled a sharper focus on profitability. He said the company will scale down some of its expensive bets on new projects and take a new look at ventures that are underperforming.

The news came as welcome relief for shareholders, who had seen the company shed nearly three-quarters of its value from its pandemic-era peak as competition, regulation, economic slowdown and a succession of embarrassing governance revelations hurt the social media giant.

The company said its core advertising business was improving as it deployed more AI tools to help target ads more efficiently. Revenue has been under pressure for a year since Apple (NASDAQ:AAPL) introduced new privacy settings on its devices that made it impossible for Facebook to target ads at iPhone users with the same accuracy.

The advertising market remains challenged by the weak macroeconomic environment, evidenced by a 55% drop in net income to $4.65B and a corresponding drop in earnings per share to $1.76, but Meta's forecast for first quarter revenue was in line with market expectations at a range of $26B to $28.5B. Revenue in the fourth quarter was down 4% year-on-year but up 2% when adjusted for foreign exchange swings.

The rise in revenue reflected the company managing to add to a user base that is now decidedly mature. Daily active user growth inched up 4% to 2B, which Zuckerberg attributed to progress made in driving engagement with its Reels feature - Facebook's answer to TikTok's short-form videos.

However, it was the action on costs that grabbed analysts' attention. Meta said its 2023 expenses will be in a range of around $92B, a cut of some 7% from earlier estimates. That follows the announcement last month to cut headcount by over 10%. The company also said it will prune capital spending by a similar amount.

"Make no mistake, (Zuckerberg) is still that "build the next big thing" growth CEO - you can hear the excitement in his voice when he references Generative AI and avatars," analysts at Alliance Bernstein said in a note to clients. "But when you come out on the call and announce 2023 as the "Year of Efficiency", you are telling your investors that you've heard them, you understand them, and you recognize the reality the company finds themselves in."