Meta Platforms, the parent company of Facebook, Instagram and WhatsApp, reported its fourth quarter and full year 2023 earnings on February 1st 2024, beating Wall Street expectations and sending its stock price soaring over 20% the next day. The company reported record profits, surpassing $32 billion for the full year while growing its user base across apps to 3.14 billion monthly users. Meta also initiated a $0.68 quarterly dividend, its first ever, while announcing a new $40 billion share buyback program on the heels of a year spent aggressively cutting costs and headcount.
Record Profits After Year Focused on Efficiency
After a difficult 2022 which saw Meta’s stock price decline over 60%, CEO Mark Zuckerberg instituted a renewed focus on efficiency and cost cutting, culminating in the elimination of over 11,000 jobs in late 2023. The effort seems to be paying off, with Meta blowing past analyst estimates by reporting revenue of $32.17 billion and earnings per share of $3.67 for Q4 2023.
Full year 2023 profits were equally impressive, zooming 46% from the previous year to hit $32.65 billion. Total 2023 revenue landed at $117.93 billion. The profit beat comes after Meta already trimmed over $5 billion in costs last year through layoffs and spending reductions. Operating expenses were down 22% in Q4 year over year.
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“We’ve fundamentally restructured our company to increase efficiency,” Zuckerberg said on a conference call with analysts. “We’re going to become more proactive about cost cutting when growth slows versus just reactively responding.”
The trimmed operation resulted in Meta’s highest operating margins since 2020, hitting 34% for the full year. Zuckerberg expects costs to stabilize in 2024 after a year of heavy cuts.
A Generous Gift for Shareholders
In a surprising move that delighted Wall Street, Meta announced the initiation of a quarterly dividend of $0.68 per share as part of a plan to return over $40 billion to shareholders through next year. The staggering size of the payout plan equates to over 27% of Meta’s current market cap, an almost unheard of percentage for a mature tech company.
The dividend itself will distribute over $6.5 billion to shareholders annually at the current share count. The company is funding the payout through cash from operations rather than taking on debt or issuing more shares. Meta’s balance sheet remains rock solid, with over $31 billion in cash and securities at year end, and debt at just 4% of total assets.
Many market commentators see the payout plan as a strong vote of confidence from management in Meta’s future profit potential.
“This substantial return of capital underscores Meta’s confidence in the durability of its long-term earnings growth potential,” said Morgan Stanley analyst Brian Nowak about the dividend plan.
Rebound in Ad Revenue Despite Apple’s ATT
Meta leaned heavily on its advertising business to drive top line growth last year, with ad revenue expanding to $115.62 billion. That’s a 6% jump over the prior year, showing the resilience of Meta’s ad targeting engine even in light of Apple’s privacy changes.
The growth in advertising sales showcases Meta’s advertising automation technology, which uses AI to optimize ad performance independent of user data, circumventing some of the targeting issues brought about by Apple.
Meta expects minimal impacts to ad revenue in 2024 from Apple’s recent expansion of its App Tracking Transparency rules globally. Management credits constant improvements to ad targeting algorithms which rely less on individual data points.
Global advertising partners continue to find value in Meta’s highly engaged user base, prioritizing the platform within their marketing budgets and helping offset any targeting issues. Facebook ad impressions rose 19% in Q4 while average price per impression increased 8%.
Strong Growth in Monthly Active Users
Meta grew monthly active user counts across its family of apps by 4% in 2023, hitting 3.14 billion global users. That’s 98 million net new users for the year. Both Facebook and WhatsApp showed resilience by adding several million monthly actives quarter-over-quarter in Q4, even in mature North American and European regions.
Notably, Meta appears to have stanched the bleeding in daily active user counts on Facebook. After falling for three straight quarters, Facebook’s DAU number was roughly flat in Q4 2023 compared to the prior quarter. Many analysts see this as a tentative sign that Facebook engagement is stabilizing after years of stagnation.
With global monthly user penetration under 50%, Meta likely has a long growth runway still ahead to continue expanding its ecosystem. Management called out India, Indonesia and the Asia Pacific region more broadly as geographies where user and engagement trends remain healthy.
Big Bets: AI, Metaverse Spending Continues
Even while preaching renewed fiscal discipline, Meta plans to continue pouring tens of billions into speculative long term bets around AI and the metaverse. AI remains a central focus, culminating in last fall’s launch of Blender Bot which showcases natural conversation abilities.
Meta is pouring resources into developing the next generation of AI, with a focus on building massive machine learning models akin to OpenAI’s famous GPT chatbot. Management confirmed AI development will be the company’s top technical priority over the next decade.
On the metaverse front, losses ballooned 60% higher in 2023, reaching nearly $13.7 billion as Meta subsidizes early virtual reality hardware sales to seed an ecosystem. Meta’s Reality Labs division, which houses metaverse development, doesn’t expect profitability for years.
Zuckerberg asked for patience around these experimental bets, pointing out it took eight years from Facebook’s founding for the company to become clearly profitable. He remains convinced the metaverse in some form will eventually gain mainstream appeal.
Bulls See Value in Beaten Down Shares
Meta’s battered shares surged over 20% the day after earnings were announced, notching the stock’s best single day gain since 2013. The rally tacked on over $200 billion in market value, the largest daily gain in value ever recorded by an individual U.S. company.
Despite the mammoth point gain, Meta’s shares remain nearly 60% off their 2021 peak. The price-to-earnings valuation also sits 40% below the S&P 500 market average. Those factors have sparked calls that the stock has turned the corner into value territory after plunging last year.
Meta stated the $40 billion set aside for buybacks amounts to over 10% of total shares outstanding. Aggressive repurchases funded out of ongoing profits should put a firm floor under the stock in coming quarters.
Bulls also think Meta’s new embrace of capital return and cost discipline – hallmarks of traditional value stocks – could expand its shareholder base beyond just tech focused growth investors.
Outlook Remains Strong but Headwinds Persist
For 2024, Meta issued initial guidance bracketing revenue growth between 0% at the low end and 11% on the high side, slower than 2023’s 14% revenue expansion. The muted initial forecast reflects management’s conservative stance given the challenging macroeconomic environment.
Many Wall Street analysts think Meta’s guidance proves overly cautious given momentum evident in the recent quarter. Independent ad monitoring firms report continued pricing strength for Facebook placements early in Q1 2024.
Headwinds remain, including foreign currency fluctuations, inflationary impacts on consumer demand, and the lingering effects of Apple’s privacy rules on ad targeting. However, Meta enters 2024 on a high note, with a right sized cost structure and big tailwinds from AI investment. For a company left for dead by markets just 6 months ago, Meta and its visionary but embattled CEO have staged a remarkable comeback – for now.
What’s Next for the Social Media Giant
While challenges around ad targeting and shrinking Facebook engagement remain, Meta’s Q4 results showcase a company with renewed confidence in its future. Mark Zuckerberg has clearly placated Wall Street, at least temporarily, by embracing fiscal discipline and committing serious money to shareholders.
Bulls expect Meta’s aggressive investments in AI to pay dividends over the next decade across areas from ad targeting to content moderation automation. Continued user growth outside Western regions also gives confidence that the family of apps retains vitality even as competitors like TikTok grab young eyeballs.
Questions linger whether Meta can juggle its maturing social media business with still unproven, capital intensive bets around virtual reality and the metaverse. But with the balance sheet strong and shares trading at a perceived discount, investors seem newly optimistic the company can continue evolving.
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