Meta Platforms Inc. saw its stock price surge over 20% on Friday (2 February 2024), putting it on track for its third-best single day performance ever. The massive rally came after the social media giant reported stronger-than-expected fourth quarter results, announced its first ever dividend, and provided an upbeat revenue outlook for the first quarter.
The company, which owns Facebook, Instagram and WhatsApp, said fourth quarter revenue rose 25% to $40.1 billion from $32.2 billion a year earlier. That marked the fastest growth rate in nearly 1.5 years and was well above Wall Street expectations.
Earnings also topped forecasts, with net income more than tripling to $14 billion, or $5.02 per share, from $4.65 billion, or $1.71 per share, last year.
Looking ahead, Meta provided first quarter revenue guidance of $34.5 billion to $37 billion, surpassing analysts’ consensus estimate of around $33.8 billion.
Key factors driving the better-than-expected results included a rebound in digital advertising demand as the economy strengthens, as well as the company’s intense focus on boosting efficiency.
Over the past year, Meta has made major cuts to operating expenses, including laying off over 11,000 employees. It has also scaled back costs related to its metaverse division Reality Labs.
Dividend Marks A Key Milestone
In a move that signals Meta’s transition to a more mature business, the company announced its first ever quarterly dividend of $0.50 per share. The dividend will be paid out on March 23 to shareholders of record as of March 7.
This dividend initiation was widely praised by investors as it shows Meta is committed to returning capital to shareholders as the business generates steady profits.
It also indicates the company has likely moved beyond its recent struggles related to privacy changes implemented by Apple and a broad slowdown in digital ad spending.
Meta Platforms Inc. announced an ongoing share repurchase program for Class A common stock with $30.93 billion available as of a certain date. Additionally, the company also announced a $50 billion stock buyback.
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Meta’s Focus On AI Could Pay Off
Meta has made artificial intelligence a key priority, developing large language models like LLaMA that can understand text, have conversations, and generate content.
While Meta’s AI capabilities don’t receive as much hype as OpenAI’s ChatGPT, many experts believe Meta is well-positioned to capitalize on advancements in AI.
Meta’s AI research could not only improve ad targeting and relevance, but also open up new opportunities in areas like chatbots, virtual assistants, and content creation.
As AI becomes more woven into social media platforms and digital ads, Meta’s early investments in this space are likely to yield dividends down the road.
Cost-Cutting Efforts Propel Margins Higher
In 2022, CEO Mark Zuckerberg declared that Meta would enter a “Year of Efficiency” in 2023. This intense focus on cutting costs and boosting productivity has paid off quickly, with fourth quarter operating margins doubling year-over-year to 41%. Total expenses also declined 8% annually.
Major drivers behind the margin expansion included headcount reductions, limits on hiring, and scaled back investment in experimental projects like the metaverse. Meta appears to have right-sized its cost structure to align with near-term revenue growth opportunities.
With profitability improving markedly, Meta has more flexibility to invest in attractive growth avenues like short-form video, AI, and expanding its platforms into new markets.
The company also has ample resources to continue rolling out updates for its next-generation virtual reality platform as adoption of VR headsets gradually increases over time.
Overall, Meta’s fourth quarter results indicated the company has turned an important corner after facing numerous challenges over the past 18 months.
Its refocused approach to efficiency and cost management is paying dividends, and the initiation of a dividend signals Meta’s transition to a stable, profitable technology leader.
With its vast resources and technology capabilities, Meta appears well-positioned to drive additional growth as digital advertising activity continues picking up steam.