Meta Platforms, Inc. (META) on Q4 2022 Results - Earnings Call Transcript
Operator: Good afternoon. My name is Dave and I will be your conference operator today. At this time, I would like to welcome everyone to the Meta Fourth Quarter and Full Year 2022 Earnings Conference Call. This call will be recorded. Thank you very much. Ms. Deborah Crawford, Metaâs Vice President of Investor Relations, you may begin.
Deborah Crawford: Thank you. Good afternoon and welcome to Meta Platformâs fourth quarter 2022 earnings conference call. Joining me today to discuss our results are Mark Zuckerberg, CEO; and Susan Li, CFO. Javier Olivan, COO, is also on the call and will join Mark and Susan for the Q&A portion. Before we get started, I would like to take this opportunity to remind you that our remarks today will include forward-looking statements. Actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are set forth in todayâs press release and in our quarterly report on Form 10-Q filed with the SEC. Any forward-looking statements that we make on this call are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information or future events. During this call, we may present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in todayâs earnings press release. The press release and an accompanying investor presentation are available on our website at investor.fb.com. And now, Iâd like to turn the call over to Mark.
Mark Zuckerberg: Alright. Hey, everyone and thanks for joining us today. 2022 is a challenging year, but I think we 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. And I said last quarter that I thought our product trends look better than most of the commentary out there suggests. And I think thatâs even more the case now. We reached more than 3.7 billion people monthly across our Family of Apps. On Facebook, we now reached 2 billion daily actives and almost 3 billion monthly. The number of people daily using Facebook, Instagram and WhatsApp is the highest itâs ever been. Now before getting into our product priorities, I want to discuss my management theme for 2023, which is the Year of Efficiency. We closed last year with some difficult layoffs and restructuring some teams. And when we did this, I said clearly that this was the beginning of our focus on efficiency and not the end. And since then, we have taken some additional steps, like working with our infrastructure team on how to deliver our roadmap while spending less on CapEx. Next, we are working on flattening our org structure and removing some layers of middle management to make decisions faster as well as deploying AI tools to help our engineers be more productive. As part of this, we are going to be more proactive about cutting projects that arenât performing or may no longer be as crucial. But my main focus is on increasing the efficiency of how we execute our top priorities. So I think that there is 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 will both build a stronger technology company and become more profitable. I am very focused on doing this in a way that helps us build better products. And because of that, even if our business outperforms our goals, this will stay our management theme for the year since I think itâs going to make us a better company. Now at the same time, I am also focused on delivering better financial results than what we have reported recently and on meeting the expectation that I outlined last year of delivering compounding earnings growth even while investing aggressively in future technology. And next, I want to give some updates on our priority areas. Our priorities havenât changed since last year. The two major technological waves driving our roadmap are AI today and over the longer term, the metaverse. So first, letâs talk about our AI discovery engine. Facebook and Instagram are shifting from being organized solely around people and accounts you follow to increasingly showing more relevant content recommended by our AI systems. And this covers every content format, which is something that makes our services unique. But we are especially focused on short-form video since Reels is growing so quickly. And I am really proud of our progress here. Reels plays across Facebook and Instagram have more than doubled over the last year, while the social component of people resharing Reels has grown even faster and has more than doubled on both apps in just the last 6 months. The next bottleneck that we are focused on to continue growing Reels is improving monetization efficiency or the revenue thatâs generated per minute of Reels watched. Currently, the monetization efficiency of Reels is much less than Feed. So the more that Reels grows, even though it adds engagement to the system overall, it takes some time away from Feed and we actually lose money. But people want to see more Reels though. So the key to unlocking that is improving our monetization efficiencies that way we can show more Reels without losing increasing amounts of money. We are making progress here and our monetization efficiency on Facebook has doubled in the past 6 months. In terms of the revenue headwind, we are still on track to be roughly neutral by the end of this year or maybe early next year. And then after that, we should be able to profitably grow Reels while keeping up with the demand that we see. In our broader ads business, we are continuing to invest in AI and we are seeing our efforts pay off here. In the last quarter, advertisers saw over 20% more conversions than in the year before. And combined with the decline in cost per acquisition, this has resulted in higher returns on ad spend. We continue to be excited about the monetization opportunity with Business Messaging, too. Facebook and Instagram are the first two pillars of our business. And in the next few years, we hope to bring Messaging Online as the next pillar. One way of doing this is click-to-message ads, which is now the $10 billion run-rate. And paid messaging is the other piece of this. We are earlier here, but we continue to onboard more businesses to the WhatsApp Business Platform where they can answer customer questions and updates and sell directly in chat. So for example, Air France has started using WhatsApp to share boarding passes and other information, other flight information, in 22 countries and 4 languages. And businesses often tell us that more people open their messages and they get better results on WhatsApp than other channels. AI, itâs the foundation of our discovery engine and our ads business. And we also think that itâs going to enable many new products and additional transformations in our apps. Generative AI is an extremely exciting new area with so many different applications. And one of my goals for Meta is to build on our research to become a leader in generative AI in addition to our leading work in recommendation AI. The last area that I want to talk about is the Metaverse. We shipped Quest Pro at the end of last year. I am really proud of it. Itâs the first mainstream mixed reality device. I mean, we are setting the standard for the industry with our Meta Reality system. As always, the reason why we are focused on building these platforms is to deliver better social experiences, than whatâs possible today on phones. And the value of MR is that you can experience the immersion and presence of VR while still being grounded in the physical world around you. We are already seeing developers build out some impressive new experiences like Nanome for 3D modeling, molecules and drug development; Arkio for architects and designers to create interiors; and of course, a lot of great games. The MR ecosystem is relatively new, but I think itâs going to grow a lot over the next few years. Later this year, we are going to launch our next-generation consumer headset, which will feature Meta Reality as well. And I expect that this is going to establish this technology as the baseline for all headsets going forward and eventually, of course, for AR glasses as well. Beyond MR, the broader VR ecosystem continues growing. There are now over 200 apps on our VR devices that have made more than $1 million in revenue. We are also continuing to make progress with avatars. We just launched avatars on WhatsApp last quarter and more than 100 million people have already created avatars in the app. And of those, about 1 in 5 are using their avatar as their WhatsApp profile photo. I thought that, that was an interesting example of how the Family of Apps and Metaverse visions come together, because even though most of our Reality Labs investment is going towards future computing platforms, glasses, headsets and the software to run them, as the technology develops, most people are going to experience the Metaverse for the first time on phones and then start building up their digital identities across our apps. Alright. So those are the areas we are focused on, AI, including our discovery engine, ads, business messaging and increasingly generative AI and the future platforms for the Metaverse. And from an operating perspective, we are focused on efficiency and continuing to streamline the company so we can execute these priorities as well as possible and build a better company while improving our business performance. And as always, I am grateful to our teams for your work on all of these important areas and to all of you for being on this journey with us. And now over to Susan.
Susan Li: Thanks, Mark and good afternoon everyone. Letâs begin with our consolidated results. All comparisons are on a year-over-year basis, unless otherwise noted. Q4 total revenue was $32.2 billion, down 4% or up 2% year-over-year on a constant currency basis. Had foreign exchange rates remained constant with Q4 of last year, total revenue would have been approximately $2 billion higher. Q4 total expenses were $25.8 billion, up 22% compared to last year. In terms of the specific line items, cost of revenue increased 31%, driven mostly by a write-down of certain data center assets as well as growth in infrastructure-related costs. R&D increased 39%, marketing and sales increased 4%, and G&A decreased 7%. Operating lease impairments and employee-related costs were the largest contributors to growth for all three expense lines. However, growth in marketing and sales was partially offset by lower marketing spend and growth in G&A was more than fully offset by a decrease in legal-related expenses. We ended the fourth quarter with over 86,400 employees, which includes a substantial majority of the approximately 11,000 employees impacted by our previously announced layoffs who remained on payroll as of December 31 due to applicable legal requirements. We expect the vast majority of the impacted employees will no longer be captured in our reported headcount figures by the end of the first quarter of 2023. Fourth quarter operating income was $6.4 billion, representing a 20% operating margin. Our tax rate for the quarter was 24%. Net income was $4.7 billion or $1.76 per share. Capital expenditures, including principal payments on finance leases, were $9.2 billion, driven by investments in servers, data centers and network infrastructure. Free cash flow was $5.3 billion and we ended the year with $40.7 billion in cash and marketable securities. In the fourth quarter, we repurchased $6.9 billion of our Class A common stock, bringing our total share repurchases for the full year to $27.9 billion. We had $10.9 billion remaining on our prior authorization as of December 31. And today, we announced a $40 billion increase in our stock repurchase authorization. Moving now to our segment results. I will begin with our Family of Apps segment. Our community across the Family of Apps continues to grow. We estimate that approximately 2.96 billion people used at least one of our Family of Apps on a daily basis in December and that approximately 3.74 billion people used at least one on a monthly basis. Facebook continues to grow globally and engagement remains strong. We reached 2 billion Facebook daily active users for the first time in December, up 4% or 71 million compared to last year. DAUs represented approximately 67% of the 2.96 billion monthly active users in December. MAUs grew by 51 million or 2% compared to last year. Q4 total Family of Apps revenue was $31.4 billion, down 4% year-over-year. Q4 Family of Apps ad revenue was $31.3 billion, down 4%, but up 2% on a constant currency basis. Consistent with our expectations, Q4 revenue remained under pressure from weak advertising demand which we believe continues to be impacted by the uncertain and volatile macroeconomic landscape. The financial services and technology verticals were the largest negative contributors to the year-over-year decline in Q4, but both have relatively smaller shares of our revenue. Growth remained negative in our largest verticals, online commerce and CPG, though the pace of year-over-year decline in online commerce has slowed compared to last quarter. The largest positive contributors to year-over-year growth in Q4 were the travel and healthcare verticals, though both are relatively smaller verticals in absolute share. Foreign currency remained a significant headwind to advertising revenue growth in all international regions. On a user geography basis, ad revenue growth was strongest in Rest of World at 5%. North America was flat, while Asia-Pacific and Europe declined 3% and 16% respectively. In Q4, the total number of ad impressions served across our services increased 23% and the average price per ad decreased 22%. Impression growth was primarily driven by the Asia-Pacific and Rest of World regions. The year-over-year decline in pricing was primarily driven by strong impression growth, especially from lower monetizing surfaces and regions, lower advertiser demand and foreign currency depreciation. While overall pricing remains under pressure from these factors, we have continued to make improvements to our ads targeting and measurement that we believe are driving more conversions and better returns for advertisers. Family of Appsâ other revenue was $184 million in Q4, up 19%, with strong business messaging revenue growth from our WhatsApp business platform partially offset by a decline in other line items. We continue to direct the majority of our investments towards the development and operation of our Family of Apps. In Q4, Family of Apps expenses were $20.8 billion, representing 81% of our overall expenses. Family of Appsâ expenses were up 23% due primarily to restructuring-related expenses and growth in infrastructure-related costs. Family of Appsâ operating income was $10.7 billion, representing a 34% operating margin. Within our Reality Labs segment, Q4 revenue was $727 million, down 17% due to lower Quest 2 sales. Reality Labs expenses were $5 billion, up 20% due primarily to employee-related costs and restructuring-related expenses. Reality Labs operating loss was $4.3 billion. Before turning to the outlook, Iâd like to discuss our work to grow profitability by scaling monetization and improving our operational efficiency. There are two primary levers to increasing monetization: growing supply and growing demand. Growing ad supply gives businesses more opportunities to get in front of people and we are focused on enabling that in a couple of ways. First and foremost, we remain focused on building engaging experiences for the people who use our apps. We are coming into 2023 with a strong foundation as Reels continues to scale and we are seeing in-feed recommendations contribute to engagement as we help people discover new content in their feeds. We will continue to invest in making these experiences best-in-class. The other side of growing supply comes from more effectively monetizing the surfaces within our apps, including those that have a lower level of ads today. In the nearer term, ramping Reels monetization remains a primary focus. Over the longer term, we see opportunities to continue improving Facebook and Instagram monetization while also scaling revenue contributions from our messaging platforms. Growing advertiser demand is the other focus and a big effort here is around continuing to drive advertiser performance. While we are still contending with the broader macro uncertainty and signals landscape weighing on advertiser demand in the near-term, we are making good progress on our roadmap and are already seeing improvements to add performance and measurement from the investments we have made. We see opportunities for continued gains in the near and medium-term, with our AI investments powering a lot of this work as we continue to improve ads ranking and enable increased automation for advertisers to make it easier for them to run campaigns and use our systems to optimize their performance. Another opportunity we have is to further scale onsite conversions through products like click-to-message, lead ads and shop ads. Click-to-message ads continue to grow quickly and we believe they are bringing incremental demand onto our platform, with over half of click-to-message advertisers exclusively using click-to-messaging ads on our platform. We see further opportunity as we continue to scale click-to-WhatsApp ads and are investing in growing newer formats like shop ads. Over the long-term, we are investing heavily in AI to develop and deploy privacy-enhancing technologies and continue building new tools that will make it easier for advertisers to create and deliver more relevant and engaging ads. Moving now to our efficiency work, we took significant actions in 2022 to operate more efficiently. In Q4, we made the difficult decision to layoff employees while deprioritizing certain projects and curtailing non-headcount-related expenses. We have applied the same scrutiny to our physical assets. We identified opportunities to consolidate our office facilities and we have streamlined our future data centers to a new architecture, which we believe will be more cost efficient and more flexible that provides us optionality to support both AI and non-AI workloads. In Q4, we recorded $4.2 billion of total restructuring costs in connection with all of these efforts and expect there to be some additional costs in 2023 in areas like office facilities impairments as we continue this work. As Mark has said, these actions are just the beginning of our efficiency efforts, and we remain keenly focused on this in 2023. We are working across the company to deprioritize lower ROI work, move faster, increase productivity and reduce costs across the business. As part of this, we are carefully scrutinizing our hiring needs, actively reevaluating projects and reducing management layers. Iâm confident that our company-wide focus on efficiency will position us to be an even more productive organization going forward. Turning now to the revenue outlook, we expect first quarter 2023 total revenue to be in the range of $26 billion to $28.5 billion. Our guidance assumes foreign currency will be an approximately 2% headwind to year-over-year total revenue growth in the first quarter based on current exchange rates. Turning now to the expense outlook, we anticipate our full year 2023 total expenses will be in the range of $89 billion to $95 billion, lower from our prior outlook of $94 billion to $100 billion due to slower anticipated growth in payroll expenses and cost of revenue. We now expect to record an estimated $1 billion in restructuring charges in 2023 related to consolidating our office facilities footprint. This is down from our prior estimate of $2 billion as we recorded a portion of the charges in the fourth quarter of 2022. We may incur additional restructuring charges as we progress further in our efficiency efforts. Turning now to the CapEx outlook for 2023, we expect capital expenditures to be in the range of $30 billion to $33 billion, lowered from our prior estimate of $34 billion to $37 billion. The reduced outlook reflects our updated plans for lower data center construction spend in 2023 as we shift to a new data center architecture that is more cost efficient and can support both AI and non-AI workloads. Substantially, all of our capital expenditures continue to support the Family of Apps. On to tax. Absent any changes to U.S. tax law, we expect our full year 2023 tax rate percentage to be in the low 20s. In addition, as noted on previous calls, we continue to monitor developments regarding the viability of transatlantic data transfers and their potential impact on our European operations. In closing, 2022 was a challenging but pivotal year for our business. We made important progress on our priorities and have taken significant steps to improve our efficiency and productivity. We are set up well to build on this work in 2023 as we continue investing for future growth while remaining focused on delivering strong financial performance. With that, Dave, letâs open up the call for questions.
Operator: Thank you. Your first question comes from the line of Brian Nowak with Morgan Stanley. Your line is open.
Brian Nowak: Great. Thanks for taking my questions. I have two, one for Mark, one for Susan. Mark, the first one is on generative AI. I sort of wanted to dig a little more into how you think about your blue-sky potential user and advertiser use cases of generative AI? And how do you think about the timeline foresee some glimpses of those on the platform? And then the second one for Susan, just anymore color on the new data center architecture and how we should think about the long-term capital intensity of the business, whether itâs CapEx per minute, CapEx per DAU? How big of a long-term benefit could this change be to the overall cash flow? Thanks.
Mark Zuckerberg: Yes, I can start with generative AI. Yes, I think this is a really exciting area. And I mean, Iâd say the two biggest themes that focused on for this year and one is efficiency and then the kind of the new product area is going to be the generative AI work. We have a bunch of different work streams across almost every single one of our products to use the new technologies, especially the large language models and diffusion models for generating images and videos and avatars and 3D assets and all kinds of different stuff across all of the different work streams that weâre working on, as well as over the long-term, working on things that could really empower creators to be way more productive and creative across the apps and run a lot of different accounts. So I know there is some really exciting stuff here. I want to be careful not to kind of get too far ahead of the development of it. So I think youâll see us launch a number of different things this year, and we will talk about them, and we will share updates on how they are doing. I do expect that the space will move quickly. I think we will learn a lot about what works and what doesnât. A lot of the stuff is expensive, right, to kind of generate an image or a video or a chat interaction. These things weâre talking about, like cents or fraction of a cent. So one of the big interesting challenges here also is going to be how do we scale this and make this work more efficient so way we can bring it to a much larger user base. But I think once we do that, there are going to be a number of very exciting use cases. I realize this is a pretty high-level answer for now, but I think that we will be able to share more details over the coming months.
Susan Li: Thanks, Brian. On your questions about CapEx, so your first question was about the new data center architecture that we talked about, which is underpinning the lower CapEx outlook. So weâre shifting our data centers to a new architecture that can more efficiently support both AI and non-AI workloads. And thatâs going to give us more optionality as we better understand our demand for AI over time. Additionally, weâre expecting that the new design will be cheaper and faster to build than previous data center architecture. Along with the new data center architecture, weâre going to optimize our approach to building data centers. So we have a new phased approach that allows us to build base plans with less initial capacity and less initial capital outlay, but then flex up future capacity quickly if needed. Weâre still planning to grow AI capacity significantly, and that connects, I think, to a lot of the things that Mark was describing earlier in his question. In terms of longer-run capital intensity, we certainly expect that the lower CapEx outlook will have some incremental benefit to CapEx as a percent of revenue, and thatâs still really something that we are focused on over the longer term. The current surge in CapEx is really due to the building out of AI infrastructure, which we really began last year and are continuing into this year. We will be measuring the ROI of these AI investments, and their returns will continue to inform our future spend. Our intention is still to bring CapEx as a percent of revenue down, but capital intensity in the nearest term is really going to depend, in part, on the revenue outlook and our needs to further build AI capacity for future demand.
Operator: Your next question comes from the line of Eric Sheridan with Goldman Sachs. Your line is open.
Eric Sheridan: Thank you so much. Maybe I can ask a multiparter on going back to some of your comments on Reels. Mark, you always had this philosophy of letting the user sort of continue to grow engagement, and monetization has always lagged sort of consumer adoption of new products. How do you think about going a little bit deeper on the mixture of letting the engagement of short-form video continue to build versus eventually sort of continuing to drive higher levels of monetization against that product? Second, can you give us a little bit of color of how advertiser conversations continue to evolve around short-form video and the adoption of the Canvas and the utilization of that as a means to deliver a mixture of brand and DR messages? And then lastly would just be, can you quantify at all the gap that still exists between the engagement around short-form video and the monetization and how that might close as we look out over the next couple of years? Thanks so much.
Mark Zuckerberg: Yes. I mean the way Iâve always looked at â I can take the first part of this, is that for these consumer products, often building up and scaling the product use case is a somewhat different discipline than working on the monetization. So itâs such a kind of hard problem to build these new types of products that you want to give the teams as much clarity and as simple of goals as possible. So in the beginning, just saying, okay, just letâs make something that works for people. And then once we get to many hundreds of millions of people or billions of people using it, then we will focus on ramping up the monetization, which has been a formula thatâs worked for us. Thatâs the general approach. Now with Reels, we do have a lot of people using it now. So I think at this point, the question is, is there any strategic advantage to letting it scale further than will be â than would be profitable to do? And I think at the scale that itâs at right now, itâs not clear that there is much strategic advantage. I mean there are certain flywheels, and you get certain more feedback or data points from a little bit more distribution. But at this point, weâre at pretty good scale. So I think for now, the right thing to do is to work on monetization efficiency. And we know that there is demand to see some more Reels. And as we naturally improve the monetization efficiency, which I have confidence in because the teams are doing good work, and thatâs been working, I shared the stat about it, the efficiency doubling over the last 6 months on Facebook, I think as we can continue some of those trends, then we will naturally just unlock the ability to show more and more Reels, and we will continue to grow from there. But thatâs the overall approach. I do think that our philosophy of building these consumer products, focusing on getting them to hundreds of millions or billions of people and then focusing on monetization beyond that and bringing that in as the balance is the right approach. It served us well. You can expect us to continue doing that on future things that we do, including some â hopefully, some of the new generative AI products or some of the new Metaverse stuff that weâre doing. Weâre going to take the same approach there as well.
Javier Olivan: So on the advertisers reaction to Reels. We continue working on enabling more advertisers to participate in Reels app, more formats, more objectives, more tools to create them. And weâve been making good progress with now over 40% of our advertisers use Reels across our apps. And between Direct Response versus brand, we are actually seeing progress with both, but Direct Response continues to be where advertisers are focused. And just as an example, Outletcity, which is a German fashion retailer, developed â created specifically for Reels to test the impact of conversions. And they found that Reels resulted in a 19x higher ROIs, 89% lower cost per purchase, and 9x higher lift in sales. So overall, very good results.
Susan Li: On your third question, Eric, we are not quantifying the gap in monetization efficiency between Reels and other services. We know it took us several years to bring the gap close between Stories and Feed Ads. And we expect that this will take longer for Reels. Having said that, we are still roughly on track to bring the overall Reels revenue headwind to a neutral place by the end of this year or early next year and we are planning to do that through both improving Reels monetization efficiency and growing incremental engagement from Reels.
Operator: Your next question comes from the line of Mark Shmulik with Bernstein. Your line is open.
Mark Shmulik: Yes. Thanks for taking the questions. Iâve got a couple as well. First one, I know for Susan or Javier. As we think about â I appreciate the color on improving conversion rate. Would it be fair to say that youâre kind of through the other side of some of those IDFA headwinds weâve been talking about for the last year or so? And any more color just kind of that journey of the AI-driven adage would be appreciated. And secondly, Mark, kind of diving in that annual theme of efficiency and following on Buzzâs post. Whatâs the right way to think about long-term investment intensity in Reality Labs and kind of balancing that with the ambition to build the next computing platform. Is this the right intensity of kind of where youâre at right now to think about? Or are there any milestones we should be looking for? Thanks.
Susan Li: Thanks Mark. So on your first question, we are continuing to make progress in mitigating the impact from the ATT change. But this is more generally just the reality of the online advertising environment that we operate in now. So weâre continuing to work on building tools that mitigate the impact of those changes, and we see strong adoption of those tools, including tools weâve talked about before like CAPI Gateway, etcetera. Weâre also investing in ways to bring conversions on site, and we have a lot of ad formats that have been instrumental in doing so across both click-to-messaging ads, leads ads â lead ads and shop adds being formats that bring conversions on site. And then over the longer run, weâre continuing to invest in our privacy-enhancing technologies to more fundamentally enable us to deliver more performance and privacy-safe ads to advertisers. Javi, is there anything you want to add on that?
Javier Olivan: Yes. And I think, Susan, you touched on most of it, I think if you look at the strategy on ads, we really have two parts, which is continue investing in AI and thatâs where we are seeing a lot of the improvement in ads relevance. And as Mark was saying, we saw over 20% more conversions than in the prior year, which, combined with the decline in cost per acquisition, results on high ROIs. We also use it for automated experiences for the advertisers, improvements on measurement, which allow advertisers to do better decisions. But the second part is bringing more conversions onsite, which are also obviously helping offsetting this Signal loss. Indeed, we are reframing the column of the Signal growth opportunity. And one example we believe that where just to give another example, IRIS , which is an online marketing and sales automation agency in Italy for hotels and resorts. They use this app to collect a higher volume of qualified links at a lower cost, so basically compared to offsite leads . They managed to achieve a 2x more final bookings with onsite leads, 4x more qualified leads than onsite based on a 2.7x lower cost per lead with onsite versus the alternative option in the lead acquisition offsite.
Mark Zuckerberg: Alright. And I can give some color on â and I think there was a question about how weâre thinking about this efficiency theme as it applies to Reality Labs over time. I guess there are two ways that I think this applies. The first thing is, I think itâs important to not just think about Reality Labs as one thing, right? There are like three major areas, right? There is the augmented reality work long-term, which is actually the biggest area, but hasnât â but itâs still a large research problem. There is a lot of work there that we havenât actually shipped the product yet. VR, which is starting to ramp, right, Quest 2, I think, did quite well. We have multiple product lines there with the Quest Pro. And then the smallest by kind of budget size today is the Metaverse software program. And thatâs â it doesnât reflect the importance of it. I think the software and social platform might be the most critical part of what weâre doing, but software is just a lot less capital intensive to build than the hardware. So itâs the smallest part of the program. And within each of those areas, there are a lot of different things that weâre doing. So just like any project that we would run weâre constantly learning from how the products that weâve shipped are doing, how the market is evolving overall, how competitors are doing, and what reaction they are seeing to different things, and what experiments are being played out. And weâre kind of constantly tuning the road map. And obviously, some of these are longer-term things, right? So you start planning out the hardware that youâre going to ship 2, 3 years in advance. But weâre kind of constantly looking at the signals and learning and making decisions about what it makes sense to do forward. So thatâs definitely going to continue. And we will â even though Iâm â none of the signals that Iâve seen so far suggests that we should shift the Reality Lab strategy long-term. We are constantly adjusting the specifics of how we adjust â of how we execute this. So I think that we will certainly look at that as part of the ongoing efficiency work. The other piece is just different tactics, things like trying to flatten the org, things like that. Those are going to apply across the whole company. So we expect that within the road map that weâre trying to execute, both on Reality Labs and Family of Apps, we just want to focus on making all of our work more efficient. A lot of the time, when people talk about efficiency, there is a lot of focus on prioritization and which big things can you cut. But I actually think what makes you a better company over time is being able to execute and do more things because youâre operating more efficiently, and you can get things done with fewer resources. So Iâd like to kind of get us to that mode more, which I guess gets me to a higher level point in this, which is I just think weâre in â weâve entered somewhat of a phase change for the company, where we just grew so quickly for like the first 18 years of the companyâs growth. And itâs very hard to really crank on efficiency while youâre growing that quickly. And I just think weâre in a different environment now where we have a bunch of areas that, I mean, youâre still extremely exciting and growing quickly for the future, where I think the right strategy will be to focus on kind of top line growth. But I think a lot of what we do, it really just makes sense to really focus on the efficiency a lot more than we had previously and making sure that we can do that work more effectively. For what itâs worth, I think if we do that well, it will be â I think we will be able to do better product work. And I think it will be a more fun place for people to work because I think they are going to get more stuff done. So Iâm pretty committed to this, and itâs going to go across all of the different things that weâre doing.
Operator: Your next question comes from the line of Doug Anmuth with JPMorgan. Your line is open.
Doug Anmuth: Great. Thanks for taking the questions. Susan, I know the expense outlook came down by $5 billion. I was just hoping you could talk about some of the areas where you may be able to get increased efficiency still? And then what does the new expense outlook suggest for hiring levels in â23? And then separately, I was hoping you could comment on the issues in Europe around Metaâs use of first-party data to target ads. How could this get resolved? And how should we think about the risk to Meta? Thanks.
Susan Li: I will start with the 2023, the expense outlook. So, the primary components of the reduction in the 2023 expense outlook are across three areas. The first is slower payroll growth. So, we are continuing to scrutinize how we allocate resources across the company on this. We have a broad hiring freeze in place right now. And we continue to expect a slower pace of hiring in the year as we evaluate what roles we are going to open. I will role in the answer to your second question here, which is this is an ongoing process for us. We donât presently have a hiring target to share for the end of the year. The second component of the lower expense outlook is on cost of revenue. We are expecting slower growth. Depreciation here is impacted by us extending the useful lives of non-AI servers in Q4. And then the third component is our outlook now reflects an estimated $1 billion in facilitiesâ consolidation charges. Thatâs down from the prior $2 billion estimate that we gave in the last guidance range since a portion of the previously estimated charges were already recognized in Q4 2022. So, those are really the big â those are really the primary issues as it pertains to the lower expense outlook. Your second question was on the issues in Europe around Meta using data to target ads. So, I think if you are referring to the EU DPC ruling that we have to change our approach regarding our reliance on contractual necessity as a legal basis for ads in Europe, thatâs a decision. We donât agree with it. We believe that our current approach is GDPR compliant, and we are appealing the substance of the rulings and the fines. We donât expect that those decisions are going to affect our ability to provide personalized advertising in the EU, and that advertisers should be able to continue to use our platforms to reach customers and grow their businesses.
Operator: Your next question comes from the line of Justin Post with Bank of America. Your line is open.
Justin Post: Great. Thank you. Maybe a follow-up on the privacy and data use. Are you still facing headwinds in the first quarter, or are you kind of past that from IDFA or ATT? And then as you look out over the next year, anything on Android or in the EU with Digital Markets Act, or anything we should be thinking about or aware of? Thank you.
Susan Li: Thanks Justin. On ATT, I think what I would say is there is still certainly an absolute headwind to our revenue number. That is the impact of the ATT changes being in place. Having said that, we are lapping its rollout and adoption and we are making progress in mitigating the impact due to a lot of the work that both Javi and I just talked about, including the different advertiser tools, including ad formats that bring conversions on-site and including the longer term AI investments in privacy-enhancing technologies. The second part of your question was on, oh, anything from Android and other headwinds. On Android, itâs too early to know where this will land. I think Google is taking an approach that is collaborating with the industry, which we think is critical, and we will have updates as more time elapses there. And then your third â the third part of your question, I think was on regulatory issues in the EU, I think this was on DSA. We are expecting â we have been preparing for some time to comply with DSA and meet the compliance deadlines that we expect to come into effect this year. Those are meaningful but manageable segment of costs. We have been preparing for a long time, and those costs have been factored already into our total expense guidance.
Operator: And your next question comes from the line of use of Youssef Squali with Truist. Your line is open.
Youssef Squali: Great. Thank you. Two questions for me, please. First, maybe one for Susan. Just staying on the theme of the efficiency and with all the adjustments to your cost basis lately, can you maybe just speak to the relationship you are trying to build between revenue growth and OpEx, CapEx growth over time? I think the last time we saw them move in tandem or close to each other was back in 2017. So, are you at a point where you would want them to grow much closer to each other, or are we still in an investment mode and therefore, potentially margin compression mode beyond just 2023? And then maybe, Mark, can you just provide an update on kind of the health of the broad digital ad space, especially for the SMB side and DR. Just curious if coming out of Q4, you are incrementally bullish or you are still as cautious as that you are three months or six months ago? Thank you.
Susan Li: Thanks. I am happy to take the first question. So certainly, the lower expense outlook and CapEx outlook puts us in a better position in terms of financial performance for this year. We are I think still â we are focused on the goal that Mark outlined, I think last quarter of delivering compounding earnings growth, while enabling aggressively in the future technology. And that continues to be the principle by which we are â by which we are guiding our financial plans. The second question is on update â oh, on the health of the broader digital ad space. I can take â I can start with this and Javi, you should feel free to jump in if you want to add more color. Q4, for us, we saw that the holiday season, for us, fell mostly within our range of expectations. Trends in online commerce modestly improved for us, which is encouraging, but again, the growth was still negative year-over-year. So, overall, I think this is still a pretty volatile macro environment. Itâs early in the year to know how this will shape up for 2023. And if there is anything, Javi, you would like to add, you can jump in.
Javier Olivan: No, I think you covered it well, Susan.
Operator: Your next question will come from the line of Ron Josey with Citi. Your line is open.
Ron Josey: Great. Thanks for taking the question. Mark, I wanted to talk a little bit more around the progress on the AI discovery engine in Reels. And we are seeing it in our own usage in terms of content and categories and just getting more insights and content that we would like to see. But can you just talk about the added signal that Meta is seeing and gaining you to produce this more relevant content across Reels to Stories to Feed and maybe even to Messenger? Thank you.
Mark Zuckerberg: I am not exactly sure what would be useful to share here. But in general, a lot of the gains that we are seeing on the discovery engine overall, which we basically used to refer to our AI recommendation system across Facebook and Instagram across all different content types of which Reels is sort of a special case, and thatâs growing the fastest with short-form video. But a lot of this is â I mean there is not like one specific data type thatâs useful. A lot of the trends that we are seeing here is, we are using larger models, which require more computation. We have shifted the models from being more CPU-based to being GPU-based. We have seen big improvements in the amount of time and engagement that we have gotten. And we â itâs a little bit hard for us to predict exactly how much we will be able to continue tuning those and improving. But from the experience that we have had so far, I would bet that there is still pretty significant upside there. I know that you kind of asked about specific data points, but I think that thatâs really the theme that we are seeing. And that applies across Reels and the rest of the discovery engine. The â one thing that I would add, itâs a little bit separate from your question, but we do spend most of the time talking about Reels, so maybe itâs worth giving some color on the rest of the discovery engine work, which is, it has also been doing quite well and is much more incremental to the rest of the business because if people end up being able to discover additional photos or links or groups or things like that in Facebook or just interesting content across Instagram, then they are just more engaged in the product. And we already know how to monetize that content. So, that ends up being really helpful both for the overall engagement, not very cannibalistic at all and already profitable. So, thatâs â we have spent less time talking about that because I get that Reels is sort of the faster-growing area. But we do still expect that as a percent of the overall feeds in Facebook and Instagram, recommended content will continue growing. I donât know if it will be a majority by the end of this year, but maybe it will be 30%-ish, 40%, something in that zone, and continuing to grow because we can just find content that people are going to be interested in that may not be from accounts that they have followed directly. So, hopefully, thatâs some useful color on what we are seeing across those efforts.
Operator: Your next question comes from the line of John Blackledge with Cowen. Your line is open.
John Blackledge: Great. Thanks. Two questions. Just a follow-up on Reality Labs, should we continue to expect accelerating losses at Reality Labs in â23? And if so, should we expect Reality Labs to be a peak up losses this year? And then second, Susan mentioned shop ads in the bucket of early monetization. Just any color there on how we might see that scale this year. Thank you.
Susan Li: Yes. Sorry, I will go ahead and take the first question about Realty Labs, and Javi, you can take the second question on shop ads. On Reality Labs, we still expect our full year Reality Labs losses to increase in 2023, and we are going to continue to invest meaningfully in this area given the significant long-term opportunities that we see. It is a long-duration investment, and our investments here are underpinned by the accompanying need to drive overall operating profit growth while we are making these investments. I will turn it to Javi on the shop ads.
Javier Olivan: Yes. So, in Q4, we continued to test shop ads in the U.S., and we are seeing increased performance by helping direct the consumer to the place where they are most likely to purchase. So, itâs early to know, but we really finally saw product market fit in the test. Itâs off a small base. But to just give you a sense, we saw triple-digit growth in both revenue and adoption across Q4. And we expect this growth to normalize to a lower level in 2023. And the shop ads beta has a revenue run rate in the hundreds of millions of dollars. So, that gives you a small base. Itâs a small revenue run rate yet, but itâs growing rapidly. And we expect it to continue, but normalize to more lower levels in 2023.
Operator: Your next question comes from the line of Mark Mahaney with Evercore ISI. Your line is open.
Mark Mahaney: Thanks. Two questions, please. The click-to-messaging is now about $10 billion revenue run rate. How do you think about the growth path for that going forward? And do you find that thatâs bringing in brand-new advertisers to Meta that you hadnât seen before? Like who is coming in on that? And does that give you a new growth path? And then, Mark, if I could just ask you. This year of efficiency, itâs almost like there has been a journey going on since early last year when you talked about â talking about driving the business for growing operating profit. And I guess I just want to ask the why question. I mean itâs â the markets obviously like what they are hearing from you today and the changes. But why the much greater focus on efficiency, not just tonight, but kind of over the last 9 months or 12 months with maybe a few hiccups. Like what â is it just the maturity of the business? Is it just trying to take on advantage of a crisis, but there is a crisis out there in terms of the economy, and maybe that forced minds to think this way. Just a little bit more color on the why. Thanks a lot.
Susan Li: Thanks. This is Susan. On the click-to-messaging ads, so we are â this is one of our fastest-growing ads products. And we believe that they are bringing incremental demand onto our platform. I mentioned in my script that over half of click-to-message advertisers exclusively use click-to-message ads on our platform. In terms â you asked how we are going to scale and I think there are a couple of dimensions. In terms of demand, I think the biggest piece here is getting more businesses to adopt click-to-messaging ads via creating more entry points, simplifying creation flows. We are trying to integrate with partners who can help smaller businesses scale. So, there is a lot of work going on there. On the performance side, we are continuing to focus on just driving up the ROI that advertisers get from click-to-messaging ads. We are trying to give advertisers the ability to do more down-funnel optimization, create better in-thread experiences and simplify flows that help them drive conversion. And then ultimately, we are always focused on growing supply and in this case, growing the business messaging ecosystem by creating more ways for people and businesses to connect across our messaging app. So, I think an example of that would be something like business direct research on WhatsApp. So, itâs an opportunity we are very excited about and we have invested a lot in and we have seen very healthy growth. I will turn it to Mark on the efficiency question.
Mark Zuckerberg: Yes. So, I mean on the efficiency point, I think we come to it from a few places. I mean one is just like the journey of the company. And for the first 18 years, I think we grew at 20%, 30% compound or a lot more every year, right. And then obviously, that changed very dramatically in 2022, where our revenue was negative for the growth for the first time in the companyâs history. So, that was a pretty big step down. And we donât anticipate that, thatâs going to continue, but I also donât think itâs going to necessarily go back to the way it was before. So, I do think this is a pretty rapid phase change there that I think just forced us to basically take a step back and say, okay, we canât just treat everything like itâs hyper growth. There are going to be some areas that are going to be very rapidly growing or that are very kind of future investments that we want to make. But we also have a lot of things now that are â just kind of have a lot of people using them and support large amounts of business and that we think we should operate somewhat differently. So, there is that piece of it. But the other part of it that I would say is that as we started doing the work, I actually think it makes us better, right. And that was somewhat unexpected, right. I kind of historically would have thought that this would just occupy some amount of our mind space and that, that would be more of a trade-off against how we are able to build products and get things done. But at this point, I am actually fairly optimistic that there are a pretty good roadmap of things that we can do that will just make us more efficient and actually better able to build the things that we want. Not all of them will help save money, right. So, for example, focusing on AI tools to help improve engineer productivity, itâs not necessarily going to reduce costs. Although over the long-term, maybe it will make it so we can have fewer â we just hire less, right, and stay a smaller company for longer. But I do think things like reducing layers of management just make it so information flows better through the company and so you can make faster decisions. And I think ultimately, that will help us not only make better products, but I think it will help us attract and retain the best people who want to work in a faster-moving environment. And so that honestly was a little bit surprising, right, that as we started digging into this that the company would actually start to feel better to me. And I donât know how long that will â like how long the roadmap is, if things that what we can continue to do where that will be the case. But I do think we have a good amount of things like that. So, thatâs why I am really focused on this now. And I do want to continue to emphasize the dual goals here of making the company a better technology company and increasing our profitability. They are both important, but I think itâs also really important to focus on the first one of just making it a better company because that way, even if we outperform our business goals this year, I just want to communicate, especially the people inside the company that we are going to stick with this, because I think itâs just going to make us a better company over the long-term. So, I think thatâs it for now.
Deborah Crawford: Operator, we have time for one last question.
Operator: Thank you. That will come from the line of Brent Thill with Jefferies. Your line is open.
Brent Thill: Thanks. Susan, for your Q1 guidance, can you just remind us all what your embedded expectations are for market conditions, how you think about seasonality? Whatâs embedded in that guidance?
Susan Li: Thanks Brent. For â I mean for Q1, we are â our guidance range of $26 billion to $28.5 billion corresponds to negative 7% to plus 2% year-over-year growth. And it reflects a wide range of uncertainty given the continuation of the general macro environment that we have been operating in. Again, we are pleased with the core engagement trends that we have talked about and the performance improvements that we are delivering for advertisers with our monetization work and our investments in AI. And we expect FX to be less of a headwind to year-over-year growth in Q1 than it was in Q4. But again, we are keeping a close eye on advertising demand and on the ongoing macroeconomic volatility.
Deborah Crawford: Great. Thank you for joining us today. We appreciate your time, and we look forward to speaking with you again.
Operator: This concludes todayâs conference call. Thank you for joining us. You may now disconnect your lines.
Related Analysis
Meta Platforms' Significant Legal Victory Over Misinformation
- Meta Platforms (NASDAQ:META) wins a lawsuit against Children's Health Defense, reinforcing its commitment to combat misinformation on its platforms.
- The victory sets a precedent for social media companies on managing content that poses a risk to public health, especially concerning vaccine misinformation.
- This case highlights the balance social media companies must maintain between freedom of expression and the responsibility to prevent harm, emphasizing the importance of responsible platform management.
Meta Platforms, known for its flagship social media site Facebook, has recently emerged victorious in a significant legal battle. The company faced a lawsuit from Children's Health Defense, an organization led by Robert F. Kennedy Jr., which is known for its anti-vaccine stance. The lawsuit challenged Meta's decision to censor posts on Facebook that spread false information about vaccines' efficacy and safety. This legal win is a testament to Meta's commitment to fighting misinformation on its platforms.
Misinformation on social media has been a growing concern, especially regarding public health issues like vaccinations. Meta's policies aim to prevent the spread of false information that could harm public health. By winning this lawsuit, Meta reinforces its right to enforce these policies on its platform. This is crucial in the era of digital information, where the rapid spread of misinformation can have real-world consequences.
The legal victory for Meta Platforms not only highlights the company's efforts to maintain the integrity of information on its platforms but also sets a precedent for how social media companies can manage content that poses a risk to public health. It underscores the importance of social media platforms taking active roles in combating misinformation, especially on topics as critical as vaccines, which are central to public health efforts worldwide.
This case also reflects the broader challenges that social media companies face in balancing freedom of expression with the responsibility to prevent harm. By defending its actions legally, Meta Platforms demonstrates its commitment to responsible platform management. This is an ongoing challenge in the digital age, where the line between free speech and harmful misinformation is often blurred.
Overall, Meta's legal victory is a significant moment in the ongoing battle against misinformation online. It reaffirms the company's authority to control the content on its platforms in the interest of public health and safety. This case may serve as a reference for future disputes involving social media content and misinformation, marking an important step in the efforts to ensure that information shared online is accurate and safe for public consumption.
Meta Platforms (NASDAQ:META) Surpasses $1 Trillion Market Cap: A Deep Dive into Its Financial Health and AI Focus
- Meta Platforms' strategic focus on AI across its platforms has significantly contributed to its market capitalization surpassing $1 trillion, marking a new era of growth.
- Despite an operating loss of $4.5 billion in its Reality Labs segment, Meta shows strong operational success with a 22% revenue increase in its Family of Apps segment and a 47.2% jump in operating income to $19.3 billion.
Meta Platforms (NASDAQ:META), with its impressive market capitalization surpassing $1 trillion, stands at the forefront of technological innovation, particularly with its strategic focus on integrating advanced artificial intelligence (AI) across its widely used platforms such as Facebook, Instagram, and WhatsApp. This focus on AI not only cements Meta's position as a tech giant but also signals a new era of growth for the company. Meta's journey from a social media platform to a conglomerate that influences the global tech landscape is marked by its inclusion in the "Magnificent Seven" tech giants, showcasing its significant impact on the stock market.
The company's financial health and stock performance further illustrate its robust position in the market. With the stock currently trading at $488, an impressive 56% gain year-to-date. This surge in stock price is supported by Meta's recent quarterly report, outperforming the Nasdaq Composite's 9% gain. Such financial milestones underscore the company's strong market performance and investor confidence.
Meta's operational success is evident in its Q2 2024 earnings call, revealing that over 3.27 billion people engage with at least one of Meta's platform apps daily. The Family of Apps (FoA) segment, in particular, saw a 22% revenue increase in the second quarter, with operating income jumping by 47.2% to $19.3 billion, largely driven by the growth in the WhatsApp Business Platform. This growth trajectory is further bolstered by the performance of Reality Labs (RL), Meta's division focused on augmented reality (AR) and virtual reality (VR) technologies. Despite an operating loss of $4.5 billion, RL shows signs of recovery, primarily due to higher sales of AI-powered Quest headsets.
The company's financial metrics, as highlighted by TheFly, further solidify Meta's strong market position. With a price-to-earnings (P/E) ratio of approximately 24.09, investors demonstrate their willingness to invest in Meta's future earnings potential. The price-to-sales (P/S) ratio of about 8.26, along with an enterprise value to sales (EV/Sales) ratio of roughly 8.30, indicates the high value investors place on the company's sales. Additionally, the enterprise value to operating cash flow (EV/OCF) ratio of approximately 15.85 reflects Meta's valuation in terms of its operating cash flow, showcasing the company's financial health and operational efficiency.
Loop Capital Markets' recent update, maintaining a "Buy" rating and raising its price target for META from $550 to $575, further signals confidence in Meta's future performance. This optimistic outlook, coupled with Meta's strategic focus on AI integration and its strong financial performance, positions the company for continued growth. Investors and market watchers alike are keenly observing Meta's trajectory, as it leverages AI and other technological advancements to expand its influence in the tech sector and beyond.
AI Titans Collide: NVIDIA's Huang and Meta's Zuckerberg Discuss the Future
AI Titans Collide: NVIDIA's Huang and Meta's Zuckerberg Discuss the Future
Get ready for a clash of the titans! Tonight, NVIDIA's CEO Jensen Huang and Meta's (formerly Facebook) CEO Mark Zuckerberg will take the stage at SIGGRAPH 2024 for a much-anticipated conversation on Artificial Intelligence (AI). This session promises to be a goldmine of insights into the future of this rapidly evolving field.
What to Expect:
- Accelerated Computing: The discussion is expected to delve into how advancements in accelerated computing technologies like GPUs (Graphics Processing Units) are powering the next wave of AI innovation.
- Generative AI and Open-Source Power: Huang and Zuckerberg might explore the potential of generative AI and the role of open-source collaboration in pushing the boundaries of AI development.
- Building Virtual Worlds: A key focus could be on the role of AI in constructing and animating virtual worlds, a critical aspect of Meta's vision for the Metaverse.
Benefits of AI in Various Industries:
This discussion has significant implications for various industries:
- Gaming: Advanced AI could revolutionize video game graphics, character behavior, and overall gameplay immersion.
- Social Media: AI could be used to personalize content feeds, improve content moderation, and enhance user experiences on platforms like Meta.
- Robotics: The integration of AI with robotics could lead to the development of more intelligent and versatile machines.
Stay Informed and Empower Your Investment Decisions
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FMP Company Rating API: Gain Data-Driven Insights
- Analyze Leading AI Companies: Utilize the FMP Company Rating API to assess the financial health of both NVIDIA (NVDA) and Meta Platforms (META).
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Don't miss this pivotal conversation between two AI giants. By staying informed and leveraging the power of FMP's Company Rating API, you can gain valuable insights into the future of AI and make data-driven investment decisions.
Meta Platforms' Financial Outlook and Strategic Focus on AI
- Meta Platforms NASDAQ:META is expected to report significant year-over-year revenue growth in Q2 2024, with projections around $38.27 billion.
- The company's advertising revenue, which constitutes nearly 98% of its total revenues, surged by 26.8% in Q1 2024, driven by strategic AI utilization.
- Despite challenges, Meta's stock has outperformed, with a 35.23% gain year to date, reflecting investor confidence in its growth trajectory.
Meta Platforms, listed on NASDAQ:META, is on the brink of revealing its financial performance for the second quarter of 2024. With a projected revenue range of $36.5 billion to $39 billion, the company is expected to showcase a significant year-over-year growth, with analysts predicting a revenue figure around $38.27 billion. This anticipated increase of 18% from the previous year's figures is a testament to Meta's robust business model and its ability to adapt and thrive in the dynamic tech landscape. The earnings per share (EPS) are also expected to see a substantial rise, with a forecast of $4.69, marking a 57% growth from the prior year. This growth trajectory is underpinned by Meta's consistent performance, having exceeded the Zacks Consensus Estimate in the past four quarters by an average of 13.3%.
The backbone of Meta's financial health is its advertising revenue, which surged by 26.8% to $35.64 billion in the first quarter of 2024, accounting for nearly 98% of its total revenues. This growth is largely driven by the company's strategic utilization of artificial intelligence (AI) to boost advertiser spending across its platforms, including WhatsApp, Instagram, Messenger, and Facebook. These platforms collectively engage over three billion people daily, offering a vast audience for advertisers. The expected advertising revenue for the second quarter is $37.51 billion, indicating a 19.1% year-over-year growth. This demonstrates Meta's effective monetization strategies and its dominance in the digital advertising space.
Meta's strategic emphasis on AI and machine learning has been crucial in keeping users engaged across its social media platforms. The company's AI-driven feed recommendations have significantly contributed to this success. However, the investments in developing advanced AI models and services are anticipated to pressure margins, with the Reality Labs business continuing to face losses. Despite these challenges, Meta's stock has shown remarkable performance, with a 35.23% gain year to date, outpacing both the Zacks Computer & Technology sector and the S&P 500 indices. This performance reflects investor confidence in Meta's growth trajectory and its ability to navigate the complexities of the tech industry.
However, Meta's valuation metrics suggest a premium, trading at a forward 12-month Price/Sales ratio of 8.06X, above the sector average. The company's financial ratios, including a price-to-earnings (P/E) ratio of approximately 28.01 and a price-to-sales (P/S) ratio of about 8.06, indicate how much investors are willing to pay for a dollar of earnings and sales, respectively. These ratios, along with an enterprise value to sales (EV/Sales) ratio of roughly 7.78 and an enterprise value to operating cash flow (EV/OCF) ratio of approximately 15.67, highlight Meta's valuation in relation to its sales and operating cash flow. The debt-to-equity (D/E) ratio of about 0.13 shows a lower reliance on debt for financing, while the current ratio of approximately 2.68 suggests a healthy ability to cover short-term liabilities with short-term assets.
Meta Platforms is poised for significant growth, driven by its innovative use of AI to enhance platform engagement and advertiser spending. Despite facing challenges such as margin pressures from investments in AI and the Reality Labs business, the company's strong financial performance and strategic focus on AI for platform enhancement and commerce capabilities signal a promising future. However, investors are advised to consider the near-term challenges and the company's premium valuation before making investment decisions.
Wedbush Increases Meta Platforms Price Target to $570 on Strong Advertiser Demand
Wedbush analysts raised their price target for Meta Platforms (NASDAQ:META) from $480 to $570, driven by strong advertiser demand highlighted in its recent digital advertising survey. The analysts found that results were notably better than expected for both Pinterest and Meta. Surveying over 200 US-based advertisers, they discovered robust advertiser demand through the second quarter, particularly benefiting Meta.
This positive trend continues from previous quarters, with Meta's revenue from US-based advertisers accelerating for five consecutive quarters. The survey also revealed that 44% of advertisers plan to increase their spending by more than 10% year-over-year in the third quarter.
Wedbush interprets this strong advertiser sentiment as a positive indicator for Meta's future growth. The consistent year-over-year growth expectations between the second and third quarters suggest a potentially milder deceleration in US advertiser growth throughout 2024. In light of these findings, Wedbush increased its revenue and operating income estimates for Meta for both the second quarter and the full year. Their new Q2 revenue estimate is $38.4 billion, representing a 20% year-over-year increase and a 2% rise from their previous estimate. They also forecast a Q2 operating income of $14.6 billion, surpassing their prior prediction.
Based on these adjustments, Wedbush maintained its Outperform rating for Meta, reflecting confidence in the company's sustained growth in the digital advertising market.
Meta Platforms Receives "Market Perform" Rating from BMO Capital
- BMO Capital updates the Meta Platforms rating to "Market Perform" due to concerns over free cash flow burn.
- Despite challenges, Meta Platforms shows a modest stock price increase and has a promising outlook, with a significant price target of $935 by 2027.
- Meta faces controversy over data use policies and a significant class-action lawsuit, yet its stock price has seen a notable increase year-to-date.
On Wednesday, June 12, 2024, BMO Capital updated its rating on Meta Platforms (NASDAQ:META) to "Market Perform," indicating a hold action. This assessment came as the stock was trading at approximately $507.47. The revision underscores BMO Capital's concerns regarding an increasing risk of free cash flow burn at Meta Platforms. Meta Platforms, Inc., known for its significant presence in the social media and technology sector, has been a subject of financial analysis due to its dynamic market performance and strategic business decisions.
Despite BMO Capital's cautious stance, Meta Platforms has shown a modest stock price increase of approximately 1.75% since the last coverage, slightly underperforming the S&P 500 by around 3%. This performance is part of a broader narrative of growth for the company, as highlighted by an updated analysis on Seeking Alpha. The analysis, incorporating both technical and regression analysis, forecasts a promising outlook for Meta's stock price by 2027, with a significant price target of $935. This projection represents an impressive growth potential of 86.2%, attributed to key factors including Meta's expanding user base and its continuous innovation in product offerings.
In addition to its financial performance, Meta Platforms has recently announced a pivotal shift in its data use policies, specifically targeting the training of generative AI models. This strategic move to incorporate publicly shared content from European users on Instagram and Facebook into its AI training processes reflects the company's commitment to enhancing its AI features. However, this decision has sparked controversy and led to multiple complaints across Europe, calling for a halt to Meta's data practices over concerns related to user privacy and data protection, as reported by Benzinga.
Furthermore, Meta Platforms is currently facing a significant class-action lawsuit related to the Cambridge Analytica privacy scandal, with the Supreme Court announcing it will review the case. This lawsuit, which involves billions of dollars, stems from allegations surrounding the misuse of Facebook user data by the political consulting firm Cambridge Analytica. Despite these challenges, Meta's stock has continued to perform well, with a notable 40% increase in its stock price year-to-date, nearing record highs after a staggering 469% rise since the low of November 2022.
Meta Platforms Inc (NASDAQ: META) Stock Analysis: Recovery After Surprise Drop
Meta Platforms Inc (NASDAQ: META) Stock Analysis: A Surprising Turn and Recovery
On April 25th, Meta Platforms Inc (NASDAQ: META) experienced a surprising 14% drop in stock price at the market open, despite reporting first-quarter earnings that exceeded expectations. The company announced earnings of $4.71 per share, surpassing the forecasted $4.32. Following this initial decline, Meta's stock managed to rebound by more than 8%. Despite the positive earnings report, the stock's unexpected drop puzzled investors but also indicated a potential hidden opportunity as it began to recover.
The initial shock to Meta's stock price, despite outperforming earnings expectations, reflects the complex dynamics of investor sentiment and market reactions. However, the swift recovery and subsequent stability above the $400 mark, particularly with the stock finding support at $414, underscore a strong investor confidence in Meta's fundamentals and future prospects. This resilience is further evidenced by the stock's performance, with a notable increase of $10.28, or approximately 2.33%, trading at $451.96.
This rebound and stability above critical support levels highlight the market's recognition of Meta's value, even amidst initial volatility. Meta's journey towards reclaiming its all-time high of $531.49 faces several hurdles, with the $500 price point emerging as a significant psychological barrier. This level has historically acted as both a support and resistance point, making it a critical milestone for the stock. The stock's ability to briefly surpass this barrier in March, before fluctuating around it, indicates a battleground for investor sentiment and market dynamics.
However, Meta's year-to-date gain of 27% showcases the company's underlying strength and the market's optimism about its ability to navigate through these challenges. The company's market capitalization of around $1.15 trillion, coupled with a trading volume of approximately 16.28 million shares, reflects its significant presence and activity in the market. These figures, along with the stock's performance range over the past year—from a low of $229.85 to a high of $531.49—demonstrate Meta's volatility but also its potential for substantial growth. The stock's ability to maintain a level above $414, even after the initial drop, suggests a solid foundation of investor support.
As Meta continues to navigate through its challenges and opportunities, the stock's resilience and the investor optimism surrounding it provide a cautiously optimistic outlook for the remainder of the fiscal year. With the stock trading up by 0.55% at $441.68 as of the close on May 2, the continued positive momentum among investors indicates a belief in Meta's potential to overcome short-term obstacles and aim for new heights.