Written by: Sophie Lund-Yates | Hargreaves Lansdown
Meta’s revenue fell 4% to $32.2bn in the fourth quarter, which was better than expected. Costs and expenses rose 22% to $25.8bn. This resulted in operating profit falling by 49% to $6.4bn.
The number of daily active people (DAP) using one of Meta’s sites, including Facebook, Messenger and Instagram, was 2.96bn, up 5% compared to last year.
Meta said it took “several measures to pursue greater efficiency and to realign our business and strategic priorities. This includes a facilities consolidation strategy to sublease, early terminate, or abandon several office buildings under operating leases”, and the group will also be laying off approximately 11,000 employees. Meta has also cancelled several data centre projects. In total, Meta has recognised restructuring charges of $4.2bn in the fourth quarter.
Revenue in the new financial quarter is expected to be $26 - $28.5bn. Total expenses for the full year are now expected to come in at $89 - $95bn, which is lower than previous guidance of $94 - $100bn.
Meta shares rose 18.1% in after-hours trading.
Meta’s shares have seen a jet-fuelled rebound on news of a cost-base rethink. The market has been concerned about the company’s bloated expense line and lack of direction for some time, and these results display an effort to address both of those issues. Crucially, capital expenditure is set up to be funnelled towards the group’s core family of apps, which will go a long way to calming investors’ nerves, as will scaling back certain data centre projects. While the headcount reductions are never an easy decision, from a strategic point of view many will see this as the right way to go. It’s widely understood that Meta is one of the tech giants that stands to benefit the most from headcount reductions. While spending revisions are very welcome, there’s no escaping that capital expenditures are up significantly from $5.4bn at the same point last year. Meta’s previously tried too hard to master untested innovations, rather than doubling down on protecting and growing market share from its core platforms. The market has also rejoiced at the fact Meta’s revenue hasn’t taken as much of a tumble as feared, despite its higher level of vulnerability in a slowing economy compared to other advertising-reliant peers.
Meta getting its house in order is important because times are still tough. The group’s reported its third consecutive sales drop as the wider digital advertising landscape continues to struggle. Together with a tough economy, it’s very hard for Meta to move its top line in the right direction. While the Federal Reserve has slowed its interest rate increases for the second straight meeting, borrowing costs have still been pushed to their highest levels since 2007. That is a very challenging environment in which to be selling ad space, virtual or otherwise. There are also Meta-specific issues at play, which includes competition. TikTok, and increasingly Pinterest, are muscling in to take the shine away from Facebook and Instagram’s attractiveness to marketers.
Year-to-date, Meta’s shares are up 23% against the Nasdaq which has climbed 14%. The market, which has its eyes firmly on the future, has clearly priced in a rebound of Meta’s advertising revenues. With peak inflation coming into view, and the recovery lane for the economy well signposted, there’s cautious optimism Meta can prove its bulls right.
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