Meta shares soar on resilient revenue and $40bn in buybacks

Mark Zuckerberg has laid out plans to further wrestle Meta’s costs under control in what he deemed a “year of efficiency” for the social media company, as its shares jumped on better than expected sales, guidance for lower expenses and a new $40bn share buyback.

Meta, which owns Facebook, Instagram and WhatsApp, reported fourth-quarter revenues of $32.2bn on Wednesday, a 4 per cent decline from the year before, but at the top end of its guidance and slightly above analysts’ estimates.

The company also cut its 2023 expenses outlook by $5bn and announced an additional $40bn for share buybacks.

Meta shares jumped about 19 per cent in after-hours trading. If that gain holds, it would add about $76bn to its market value, according to Bloomberg data, largely reversing the $89bn hit at its third-quarter results amid investor anxiety over its costly metaverse bet.

The fourth-quarter results present a rosier picture for Meta, which has been squeezed over the past year by the economic slowdown that prompted marketers to cut their spending, along with heightened competition from TikTok and challenges in tailoring and measuring ad campaigns following Apple’s privacy changes.

Still, its profits took a substantial knock in the quarter, which its blamed on a restructuring cost of $4.2bn in the quarter related to facilities consolidation, job cuts and the cancellation of multiple data centres. Net income in the fourth quarter dropped 55 per cent to $4.7bn, compared with consensus estimates for a drop to $6bn.

At the start of the call with investors, an upbeat Zuckerberg said his “management theme for 2023 . . . is the year of efficiency”. He said Meta was now focusing on removing some layers of middle management, cutting low-performing projects and deploying artificial intelligence tools to help its engineers be more productive.

“There’s going to be some more that we can do to improve our productivity, speed and cost structure,” Zuckerberg said. “2022 was a challenging year. But I think we ended up having made good progress on our main priorities and setting ourselves up to deliver better results this year, as long as we keep pushing on efficiency.”

Meta, which had expanded its headcount rapidly since the start of the coronavirus pandemic, has sought to bring down costs as Wall Street has increasingly questioned its lossmaking efforts to build an avatar-filled digital world known as the metaverse.

As with its many other virtual and augmented reality projects, they are not expected to generate returns for many years. In the fourth quarter, revenues from Reality Labs, its metaverse unit, fell to $727mn from $877mn a year ago, while losses were $4.3bn compared with $3.3bn the prior year.

In November, Meta announced its biggest headcount reductions, dismissing 11,000 staffers, or about 13 per cent of total employees. It also introduced other measures such as reducing budgets and employee perks, and shrinking its “real estate footprint”.

On Wednesday, the company forecast revenues for the current quarter of between $26bn-$28.5bn. It also anticipates 2023 expenses in the range of $89bn-$95bn, down from the prior outlook of $94bn-$100bn, because of “slower anticipated growth in payroll expenses and cost of revenue”.

It expects a further $1bn in restructuring charges, down from a previous estimate of $2bn.

On the call with analysts, Zuckerberg said the company’s investment in AI was paying off, allowing it to recommend more relevant short-form video content to users for its so-called Reels feature, as well as helping brands to better automate, target and measure their marketing campaigns.

He also said he hoped Meta would become “a leader” in generative AI, a fast-emerging technology that can be used to produce novel content such as graphics or literature. “You’ll see us launch a number of different things this year,” Zuckerberg said.

Meta’s growing user base also remained a bright spot. Monthly active users on one or more of its apps rose 4 per cent to 3.74bn in the fourth quarter, while user numbers for the Facebook app specifically rose 2 per cent to 2.96bn.

Lloyd Walmsley, analyst at UBS, said in a note that he could “see a path towards double-digit [revenue] growth” come the end of 2023, as well as strong growth in earnings per share. “These results show significant improvement around key overhangs and . . . shares are under-owned by long-term investors in our view.”

Additional reporting by Nicholas Megaw