Interactive Investor

ii view: Facebook owner Meta causes major excitement

2nd February 2023 11:44

by Keith Bowman from interactive investor

Share on

This social media mammoth had a torrid 2022, but its stock price has soared since the October crash. We assess prospects. 

Mark Zuckerberg 600.jpg

Fourth-quarter results to 31 December

  • Total revenue down 4% to $32.2 billion
  • Net income down 55% to $4.6 billion
  • Earnings per share down 52% to $1.76
  • Cash and cash equivalents of $40.74 billion

Guidance:

  • Expects fourth quarter revenue to be in the range of $26 billion to $28.5 billion

Chief Executive Mark Zuckerberg said:

"Our community continues to grow and I'm pleased with the strong engagement across our apps. Facebook just reached the milestone of 2 billion daily actives. The progress we're making on our AI discovery engine and Reels are major drivers of this. Beyond this, our management theme for 2023 is the 'Year of Efficiency' and we're focused on becoming a stronger and more nimble organisation."

ii round-up:

Facebook owner Meta Platforms Inc Class A (NASDAQ:META) forecast next quarter sales which could potentially end a run of consecutive falls as it again underlined an emphasis on improving efficiency.

Outlining a 2023 share buyback programme of $40 billion, up from 2022’s $27.9 billion, Meta forecast first quarter revenues of between $26 billion and $28.5 billion, comparing with first quarter 2022 revenue of $27.9 billion. 

Meta shares rose by more than 10% in after-hours US trading having more than halved over the last year. Fellow social media operator Snap Inc Class A (NYSE:SNAP) is down by around two-thirds over that time, while Google owner and fellow big advertising sales generator Alphabet Inc Class A (NASDAQ:GOOGL) is down by around a third.  

Meta, whose brands also include both Instagram and WhatsApp, has been battling a cocktail of challenges including rising costs, customer caution in buying ads in the face of a potential recession, intense competition from TikTok, and Apple Inc (NASDAQ:AAPL)'s new privacy update. 

Revenue for the final quarter of 2022 fell 4% to $32.2 billion, with earnings halving to $1.76 per share. Meta costs grew by just over a fifth last year, triggering 11,000 job cuts in November. 

The Mark Zuckerberg headed company forecast total expenses for 2023 of $89-$95 billion, down from its previous estimate of $94-$100 billion. It expects an estimated $1 billion in restructuring charges in 2023 relating to the consolidating of its office facilities. 

Meta management used the word ‘efficiency’ more than 20 times in its post results analyst meeting. 

ii view:

Founded in 2004, Facebook monthly active users total 2.96 billion, an increase of 2% year-over-year. In recent years Meta has also made a push towards the so called ‘Metaverse’ under its Reality Labs business, responsible for its Virtual Oculus 3D headwear. Revenues for the Reality business currently account for under 3% of overall sales, with full year divisional losses rising to $13.7 billion in 2022 from $10.2 billion in 2021. 

For investors, an ongoing run of quarterly sales and earnings falls cannot be ignored, costs for businesses generally remain elevated, and doubts regarding the company’s push into the metaverse persist. The economic backdrop also remains uncertain, while government and regulatory concerns regarding Meta’s influence over such events as elections and misinformation have also not evaporated.

On the upside, management initiatives to increase efficiency are now being hotly pursued. Pushes and investments into the worlds of Artificial Intelligence (AI) and the Metaverse are ongoing, while an increase in its share buyback programme underlines management’s confidence in the future. 

Meta’s brands remain a global force and moves into AI and the metaverse offer excitement. US interest rates likely nearing a peak is also good news not just for Meta but growth stocks in general, although the usual caveats apply in terms of stock price volatility and corporate events that could derail any rebound.

Positives

  • Facebook daily active users of 2 billion
  • Focus on costs

Negatives

  • Uncertain economic outlook
  • A series of scandals have previously impacted

The average rating of stock market analysts:

Buy

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

Get more news and expert articles direct to your inbox