Surpassing investor expectations, cash flow surged, prompting a rise in shares, as the tech giant approved a $50 billion share repurchase initiative.
After a robust fourth-quarter earnings report, Meta’s shares surged by 15% in after-hours trading, a response that followed a contentious congressional hearing where Mark Zuckerberg faced widespread criticism.
The firm unveiled its inaugural 50¢-per-share dividend and approved a $50 billion share repurchase initiative. Meta exceeded expectations with a fourth-quarter revenue of $40.1 billion, a 25% YoY increase from the projected $39.18 billion. This announcement aligns with Meta’s strategic move, mirroring other major tech companies, to incorporate artificial intelligence into its primary offerings. Mark Zuckerberg, in a statement accompanying the report, highlighted the significant strides Meta has taken in advancing AI and the metaverse.
The company’s press release stated that our expansive, long-term AI research and product development endeavors anticipate increased infrastructure investments extending beyond the current year.
During the previous quarter’s earnings call, Zuckerberg highlighted Meta’s focus on investing in AI, emphasizing it as the company’s primary investment area for 2024. In a video shared on Instagram in January, Zuckerberg revealed Meta’s plan to acquire $9 billion worth of Nvidia chips to support its efforts in scaling AI.
Zuckerberg has communicated that AI will play a crucial role in enhancing advertising campaigns, driving advertising revenue, and supporting new Meta products, including AI chatbots. The company’s core business, advertising revenue, saw a substantial increase to $38.7 billion from $31.25 billion in the same period the previous year. While Meta’s hardware products, like the Quest 3 VR headset, haven’t significantly contributed to the company’s revenue, Zuckerberg expressed expectations during the recent earnings call that Meta will progressively introduce AI services more widely in the upcoming months.
In 2023, Meta implemented a significant workforce reduction, with over 20,000 employees laid off as part of Zuckerberg’s designated “year of efficiency,” emphasizing cost-cutting initiatives. These measures yielded positive results, evident in Meta’s operating margin doubling to 41% from 20% in the corresponding quarter of 2022. Concurrently, expenses experienced an 8% year-over-year decrease, amounting to $23.73 billion.
During the earnings call, Chief Financial Officer Susan Li reported that Meta’s workforce stood at over 67,300 employees at the end of the fourth quarter, representing a 22% decrease from the same period the previous year. However, this figure marked a 2% increase from the third quarter, signaling a resumption of hiring efforts.
Despite these financial gains, regulatory challenges took center stage for investors following Meta’s intense scrutiny during a congressional hearing convened to examine Zuckerberg and other tech executives regarding their platforms’ impact on young users. Zuckerberg extended condolences to parents in the audience whose children had tragically passed away due to online exploitation.
During the hearing, lawmakers advocated for legislation that might remove legal immunity from Meta and other platforms regarding content posted on their platforms. This comes in the wake of a substantial lawsuit filed by attorneys general from 41 states against Meta, focusing on its impact on young users. Furthermore, the attorney general of New Mexico has filed a separate lawsuit against the company, alleging its failure to prevent child sexual exploitation and trafficking.
Due to regulatory apprehensions, Meta is proactively diversifying its core business, traditionally reliant on advertising through extensive user data collection. Reality Labs, the division responsible for developing virtual reality products, incurred losses of $4.65 billion in the fourth quarter, a rise from $4.28 billion in the same period the previous year, contributing to an overall annual loss of $16.12 billion in 2023. In a press release, Meta anticipated a substantial year-over-year increase in operating losses for Reality Labs as it endeavors to scale the ecosystem.
Beyond regulatory challenges, Meta is grappling with a decline in user numbers, particularly among young users who are shifting to newer platforms like TikTok. Insider Intelligence principal analyst Jasmine Enberg noted, “On the usage front, Facebook continued to experience limited user growth, with the majority of new users originating outside of North America. In the US, the platforms’ popularity among teens is viewed as a liability by lawmakers, potentially hindering growth efforts for both Facebook and Instagram.
