Meta Platforms Stock Surges as ‘Year of Efficiency’ Offsets 2022 Revenue Decline

Meta Platforms (NYSE: META) stock is up almost 20% in US premarkets today after reporting its earnings for the fourth quarter of 2022. The company missed earnings estimates due to restructuring costs but beat on revenues.

Meta Platforms also talked about continued cost cuts and said that 2023 would be the “year of efficiency.” It also announced a $40 billion stock repurchase program. Markets gave a thumbs up to the earnings release and the stock looks set to hit a multi-month high in today’s price action.

Meta Platforms posted better-than-expected earnings

Meta Platforms reported revenues of $32.17 billion in Q4 2022 which was ahead of the $31.53 billion that analysts were expecting. The actual results were towards the upper end of the $30 billion-$32.5 billion guidance that the company provided in the Q3 2022 earnings call.

The revenues however fell 4% YoY. The social media giant’s revenues have fallen YoY for three consecutive quarters and in the full year its revenues fell 1% to $116.6 billion. It was the first time in the company’s history that its revenues fell YoY in a year.

Looking at the other metrics, Meta Platforms reported a DAP (daily active people) of 2.9 billion in December which was 5% higher YoY. Monthly active people across the Family of Apps rose 4% to 3.74 billion over the period.

It reported an ARPU (average revenue per user) of $10.86 which was better than the $10.63 that analysts were expecting.

Facebook users rise to 2 billion

Facebook’s DAUs (daily active users) rose 4% YoY and reached 2 billion in December. It is a new milestone for the company even as the growth rates have come down significantly amid saturation in key markets. In Q4, while ad impressions across platforms increased by 23%, the average price per ad decreased by 22%.

Meta Platforms CEO Mark Zuckerburg said that 2022 was a “challenging year.” He however added that the company “ended it 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.”

He said that the company is working to reorganize its organizational structure and is removing some layers of middle management.  Zuckerburg said that Meta Platforms is working to increase productivity.

Zuckerburg says the company is working on increasing productivity

He added, “As part of this, we’re going to be more proactive about cutting projects that aren’t performing or may no longer be as crucial.”

He emphasized, “But my main focus is on increasing the efficiency of how we execute our top priorities. So, I think that there’s going to be some more that we can do to improve our productivity, speed and cost structure. And by working on this over a sustained period, I think we’ll both build a stronger technology company and become more profitable.”

Zuckerburg said that in the short term, AI is the company’s priority. In the long term, however, he sees the metaverse as the company’s key driver.

Metaverse losses swell

Meta Platforms’ investments in the nascent metaverse business have irked many investors. The business posted a loss of $13.7 billion in 2022. In the past, Zuckerburg has defended the investments and said that they are crucial for the company’s long-term success.

Ahead of Meta Platforms’ Q3 2022 earnings release, Altimeter Capital Chair and CEO Brad Gerstner wrote an open letter to the company and its CEO Mark Zuckerburg calling upon Meta Platforms to “get fit.”

The letter said, “Gerstner called upon Meta “to streamline and focus its path forward.” The letter said, “Like many other companies in a zero rate world — Meta has drifted into the land of excess — too many people, too many ideas, too little urgency. This lack of focus and fitness is obscured when growth is easy but deadly when growth slows and technology changes.”

Gerstner also called upon the company to cut its investments in the metaverse business.

Meta Platforms laid off 11,000 employees

Weeks after Gerstner’s letter, Meta Platforms announced that it would eliminate 11,000 positions which were 13% of its workforce. Zuckerburg took responsibility for the decision and said that he overhired in the false belief that the high growth rates that the company witnessed between 2020 and 2021 would sustain in the long term.

Many US tech companies have announced layoffs over the last couple of months and Apple is the only notable exception.

During the earnings call, Zuckerburg said that the company has become more efficient after the layoffs. He said, “By reducing layers of management, it’s made information flow through the company better, and it will help us make better products and attract and retain better people.” He added, “That was honestly a little surprising to me – that as we started digging into this, the company felt better to me.”

Meta increased stock buybacks

Meta Platforms announced a $40 billion stock buyback program. Last year, the company repurchased almost $28 billion worth of its shares and had another nearly $11 billion available for authorized buybacks. It ended 2022 with cash and cash equivalents of $40.74 billion while the long-term debt is just under $10 billion.

Zuckerburg on the company’s outlook

During the earnings call, Zuckerburg said, “The first 18 years I think we grew it 20%, 30% compound or a lot more every year.” He added, “And then obviously that changed very dramatically in 2022, where our revenue was negative for growth, for the first time in the company’s history.”

Commenting on the slowdown, Zuckerburg stated that “We don’t anticipate that that’s going to continue.” He, however, added that the company’s growth rates would not rise to what it has witnessed in the past.

Meta Platforms provided Q1 2023 guidance

For Q1 2023, Meta Platforms forecast revenues between $26 billion to $28.5 billion. The company posted revenues of $27.9 billion in the first quarter of 2022. Its guidance implies a YoY rise in revenues if the actual sales come at the upper end of the guidance.

Meanwhile, amid the cost cuts, Meta Platforms lowered its guidance for total 2023 expenses to be between $89 billion-$95 billion, which is below the previous guidance of $94 billion to $100 billion.

Meta Platforms was the worst-performing FAANG stock of 2022 and lost almost two-thirds of its market cap. The stock has however rebounded from the lows and looks set to continue the rally in today’s trade also.