Interactive Investor

ii view: Meta profits rocket as Zuckerberg pays first dividend

A mix of social media, virtual reality gaming and the potential for enhancements via artificial intelligence. Buy, sell, or hold?

2nd February 2024 11:39

Keith Bowman from interactive investor

Fourth-quarter results to 31 December

  • Revenue up 25% to $40.1 billion
  • Net income up 201% to $14 billion
  • Adjusted earnings per share up 203% to $5.33
  • Quarterly dividend payment of $0.50 per share

Guidance:

  • Expects first-quarter revenue of between $34.5 billion and $37 billion

Chief Executive Mark Zuckerberg said:

"We had a good quarter as our community and business continue to grow. We've made a lot of progress on our vision for advancing AI and the metaverse."

ii round-up:

Facebook owner Meta Platforms Inc Class A (NASDAQ:META) posted soaring profits as sales rose strongly and management cut costs, allowing the tech titan to declare its first ever dividend payment. 

Corporate demand to advertise across its social media pages pushed fourth-quarter revenue up 25% year-over-year to $40.1 billion, with job losses contributing to an 8% reduction in costs, taking adjusted earnings up to $5.33 per share from $1.76 a year ago. That all comfortably beat Wall Street forecasts. Meta will now pay its first quarterly dividend of $0.50 per share alongside an increased share buyback programme of $50 billion. 

Shares in the Nasdaq 100 company soared by more than 15% in afterhours US trading having already risen by nearly 200% in 2023. That’s close to the 239% gain for artificial intelligence (AI) computer chip maker NVIDIA Corp (NASDAQ:NVDA) and comfortably ahead of a 58% rise for Google owner and fellow ad-driven rival Alphabet Inc Class A (NASDAQ:GOOGL). The Nasdaq 100 itself rose 54% last year.

Buoyant advertising demand also included around a tenth of sales coming from China-based customers during the period, with the average price per ad across all its customers up 2% year-over-year.

Current first-quarter guidance from the Instagram and WhatsApp owner pointed to sales of between $34.5 billion and $37 billion, a potential acceleration in year-over-year growth to 29% from 25% this latest quarter, and 23% in the third quarter. 

Capital expenditure for 2024 could reach $37 billion, a $2 billion increase from its previous estimate as the company continues to invest in both AI and non-AI equipment such as servers and data centres. 

Broker UBS reiterated its ‘buy’ stance on the shares post the results, raising its fair value price to $530 per share from $425. First-quarter results are likely to be announced late April or early May. 

ii view:

Started in 2004, Meta today operates across two areas: its App Family including Messenger, and its Reality Labs business covering Virtual Reality (VR) gaming and metaverse interests, which currently generates under 2% of annual sales. Geographically, the US accounts for its biggest slug of revenue at around 45%, followed by Europe at 24%, Asia-Pacific at 19% and the rest of the world the balance. 

For investors, geopolitical events such as the Israeli conflict have previously generated customer caution in placing adverts. Legal battles regarding user addiction to its apps warrant consideration, as do ongoing government concerns regarding its possible impact in elections and misinformation. Investments in AI bring no guarantees, while its Reality Labs business continues to generate losses including a further $4.6 billion this latest quarter.  

More favourably, a diversity of social media apps and geographical regions exists. Paying a dividend could also increase its shareholder base to include those seeking a progressive annual payment. Management initiatives to increase efficiency are evident, while its share buyback programme continues, with $6.3 billion of stock acquired over this latest quarter. 

For now, and with clear sales momentum and the inclusion of AI potentially making ads to customers even more relevant and specific, fans of this tech titan are likely to remain optimistic.  

Positives

  • Broad base of 10 million plus advertisers
  • Focus on costs

Negatives

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

The average rating of stock market analysts:

Buy

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