Cash flow exceeded investor expectations, leading to a rise in shares, as the tech giant approved a $50 billion share buyback program
Meta’s shares surged by 15% in after-hours trading after a robust fourth-quarter earnings report, which came out the day after Mark Zuckerberg faced heavy criticism in a contentious congressional hearing. The company also revealed its plan to pay a dividend of 50¢ per share to investors for the first time and approved a $50 billion share buyback program.
In the fourth quarter, Meta posted a revenue of $40.1 billion, surpassing the expected $39.18 billion and marking a 25% year-over-year increase. This report coincides with Meta’s efforts, similar to those of other major tech companies, to incorporate artificial intelligence into its primary offerings. Zuckerberg noted in a statement accompanying the report that Meta has “made significant strides in advancing our vision for AI and the metaverse.”
“Our ambitious long-term AI research and product development endeavors are anticipated to necessitate expanding infrastructure investments beyond this year,” stated the company’s press release.
During the previous quarter’s earnings call, Zuckerberg highlighted Meta’s intentions to invest in AI, declaring it as the company’s primary investment focus for 2024. In a video posted on Instagram in January, Zuckerberg mentioned that the company would be procuring $9 billion worth of Nvidia chips to bolster its efforts in expanding AI capabilities.
AI will be employed to improve advertising strategies and drive advertising revenue, as well as to bolster new Meta products like AI chatbots, according to Zuckerberg. Advertising revenue, Meta’s primary business, amounted to $38.7 billion, up from $31.25 billion during the same period the previous year. Meta’s hardware products, such as the Quest 3 VR headset, have not yet made a significant contribution to the company’s revenue. Zuckerberg stated during Thursday’s call that he anticipates Meta to expand the rollout of AI services in the coming months.
In 2023, Meta implemented significant workforce reductions, letting go of over 20,000 employees as part of Zuckerberg’s drive for increased efficiency and cost reduction. These efforts seemed to have yielded positive results, as Meta’s operating margin doubled to 41% from 20% in the same quarter of 2022. Additionally, expenses decreased by 8% year over year to $23.73 billion. Chief Financial Officer Susan Li noted during the call that Meta had over 67,300 employees at the end of the fourth quarter, marking a 22% decrease from the same time the previous year, but a 2% increase from the third quarter due to resumed hiring efforts.
Investors seem concerned about regulatory challenges following Meta’s public scrutiny during a congressional hearing convened to examine the impact of its platforms on young users. During the hearing, Zuckerberg and other tech executives faced questions about their platforms’ impact, with Congress members discussing potential legislation that could remove legal immunity for content posted on these platforms. This comes after Meta was sued by attorneys general from 41 states over its impact on young users, and New Mexico’s attorney general also filed a lawsuit alleging the company’s failure to prevent child sexual exploitation and trafficking. Throughout the hearing, Zuckerberg expressed condolences to parents in the audience who had lost children due to online exploitation.
Due to regulatory concerns, Meta has aimed to broaden its core business, which traditionally depended on advertising through extensive user data collection. The company’s Reality Labs division, responsible for developing its virtual reality products, experienced losses of $4.65 billion in the fourth quarter, up from $4.28 billion for the same period the prior year, contributing to a total loss of $16.12 billion for the year 2023. Meta stated in a press release that it anticipates operating losses for Reality Labs to “significantly increase year-over-year” as it continues to expand the ecosystem.
Besides regulatory worries, Meta has faced a decline in user numbers for its platforms, especially among young users who are shifting to newer platforms like TikTok. According to Jasmine Enberg, principal analyst at Insider Intelligence, the company’s platforms are experiencing faster growth outside the US.
“Regarding usage, Facebook has continued to experience a slowdown in user growth, but as predicted, the majority of new users are from outside of North America,” she stated. “In the US, popularity among teenagers has become a concern for lawmakers, which could hinder the growth efforts of both Facebook and Instagram there.”
