Meta stock spikes nearly 20% as cost cuts and $40 billion for investors overshadow earnings miss

Meta stock spikes nearly 20% as cost cuts and $40 billion for investors overshadow earnings miss

Forecast for first-quarter sales relieves some concerns about the online-ads business, company plans to increase share repurchases while laying off workers and cutting other costs

Meta Platforms Inc. shares soared in after-hours trading Wednesday despite an earnings miss, as the Facebook parent company guided for potentially more revenue than Wall Street expected in the new year and promised more share repurchases amid cost cuts.

Meta META, +2.79% said it hauled in $32.17 billion in fourth-quarter revenue, down from $33.67 billion a year ago but stronger than expectations. Earnings were $4.65 billion, or $1.76 a share, compared with $10.3 billion, or $3.67 a share, last year.

Analysts polled by FactSet expected Meta to post fourth-quarter revenue of $31.55 billion on earnings of $2.26 a share, and the beat on sales coincided with a revenue forecast that also met or exceeded expectations. Facebook Chief Financial Officer Susan Li projected first-quarter sales of $26 billion to $28.5 billion, while analysts on average were projecting first-quarter sales of $27.2 billion.

Shares jumped more than 19% in after-hours trading immediately following the release of the results, after closing with a 2.8% gain at $153.12.

Alphabet Inc.’s GOOGL, +1.61% GOOG, +1.56% Google and Pinterest Inc. PINS, +1.56% benefited from Meta’s results, with shares for each company rising more than 4% in extended trading Wednesday.

“Our community continues to grow and I’m pleased with the strong engagement across our apps. Facebook just reached the milestone of 2 billion daily actives,” Meta Chief Executive Mark Zuckerberg said in a statement announcing the results. “The progress we’re making on our AI discovery engine and Reels are major drivers of this. Beyond this, our management theme for 2023 is the ‘Year of Efficiency’ and we’re focused on becoming a stronger and more nimble organization.”

Facebook’s 2 billion-user milestone was slightly better than analysts expected for user growth on Meta’s core social network. Daily active users across all of Facebook’s apps neared, but did not crest, another round number, reaching 2.96 billion, up 5% from a year ago.

Meta has been navigating choppy ad waters as it copes with increasing competition from TikTok and fallout from changes in Apple Inc.’s AAPL, +0.79% ad-tracking system in 2021 that punitively harmed Meta, costing it potentially billions of dollars in advertising sales. Meta has invested heavily in artificial-intelligence tools to rev up its ad-targeting systems and making better recommendations for users of its short-video product Reels, but it laid off thousands of workers after profit and revenue shrunk in recent quarters.

The cost cuts seemed to pay off Wednesday. While Facebook missed on its earnings, it noted that the costs of its layoffs and other restructuring totaled $4.2 billion and reduced the number by roughly $1.24 a share.

Meta executives said they now expect operating expenses to be $89 billion to $95 billion this year based on slower salary growth, cost of revenue, and $1 billion in savings from facilities consolidation — down from previous guidance for $94 billion to $100 billion. Capital expenditures are expected to be $30 billion to $33 billion, down from previous guidance of $34 billion to $37 billion, as Meta cancels multiple data-center projects.

In a conference call with analysts late Wednesday, Zuckerberg called 2023 the “year of efficiency” after 18 years of unbridled growth. He recommitted to Meta’s emphasis on AI and the metaverse, a platform for “better social experiences” than the phone, he said.

“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,” Li said in her outlook commentary included in the release.

Meta expects to increase its spending on its own stock. The company’s board approved a $40 billion increase in its share-repurchase authorization; Meta spent nearly $28 billion on its own shares in 2022, and still had nearly $11 billion available for buybacks before that increase.

“Investors are cheering Meta’s plans to return more capital to shareholders despite worries over rising costs related to its metaverse spending,” said Jesse Cohen, senior analyst at Investing.com.

“At first glance…Meta getting its mojo back,” Baird Equity Research analyst Colin Sebastian said in a note late Wednesday. “Results and guidance look particularly solid after Snap’s dismal report; however, further cuts to operating and capital expenditures announced this afternoon were perhaps the biggest surprise.”

UBS analyst Lloyd Walmsley said he anticipates double-digit revenue growth exiting 2023 and strong growth in earnings and free cash flow.

The results came a day after Snap Inc. SNAP, -10.29% posted fourth-quarter revenue of $1.3 billion, flat from a year ago and the worst year-over-year sales growth Snap has ever reported. But they also arrived on the same day Facebook scored a major win in a California court. The company successfully fended off the Federal Trade Commission bid to win a preliminary injunction to block Meta’s planned acquisition of VR startup Within Unlimited.

Meta shares have plunged 53% over the past 12 months, while the broader S&P 500 index SPX, +1.05% has tumbled 10% the past year.

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