(Josh Edelson/AFP/Getty Images)
It's been a "year of efficiency" for Meta (formerly known as Facebook), and a very good one at that.
After a devastating 2022 that saw the California-based company's market value tumble by about $600 billion and its stock fall 65%, Meta has made a major comeback. Shares of the stock are up more than 170% this year and Wall Street is feeling positive that the best is yet to come.
Even CEO Mark Zuckerberg, who was criticized in 2021 and 2022 for moving the company away from its core business of Facebook, Instagram and WhatsApp — and full-speed into the so-called metaverse — is benefiting from the reversal of fortune. As the stock boomed, Zuck, his trust, charities and political entities sold shares of Meta this November for the first time in two years for a cash-out worth about $185 million, according to regulatory filings.
So what changed?
The year of efficiency: Meta has cut corners this year, opting for austerity instead of spending on the fantasy of a future in the metaverse – and Wall Street has shown its approval by rewarding the company massively.
The company has laid off more than 20,000 employees over four rounds of layoffs beginning at the end of last year.
Meta has said the layoffs were all about efficiency, as the company attempts to recover from repeated revenue declines, heightened competition, concerns about user growth and big losses in its Reality Labs division. Zuckerberg also took responsibility for over-hiring earlier in the pandemic, when there was strong demand for the company's products and online advertising, which dropped off somewhat once the world reopened.
The company has also worked to stabilize its cash flow this year (that's the cash a company has left after covering its operating costs and investments, a good indicator of its financial health) by deprioritizing a significant number of its AI projects. That flow fell to a recent low of $173 million last fall. But as of last quarter, it's back up to $13.64 billion, a pretty impressive change.
It's also good news for shareholders. Meta spent about $3.7 billion in share repurchases in the third quarter alone.
A friendly economy: At the same time Meta was tightening its belt, it was also bolstered by a bounce-back in the advertising market, as companies realized their dire predictions about the American economy were unlikely to come to fruition. The Federal Reserve stopped hiking rates, and consumers kept right on spending.
Ad revenue came back in a big way for the company after significant declines in 2022. Meta's ad views increased in the third quarter by 31% from a year earlier. The company did see its average price per ad decline by 6%, but that was the slowest fall in nearly two years.
The company has also succeeded in adding users, monetizing its reels feature on Instagram and successfully launched Threads, meant to directly compete with Elon Musk's X. Threads will launch in the EU next week.
Looking forward: The question is whether Meta can continue to shine on Wall Street even after its program of austerity ends.
Zuckerberg announced during third quarter earnings this fall that it will spend more next year than Wall Street analysts had previously predicted, by hiring more and refocusing on expanding into AI. The company also warned that the ongoing conflict in Israel and Gaza could hit fourth-quarter sales.
Momentum also appears to be fading: the stock has dropped about 1.2% in the last month, when the rest of the market has been steadily rising.
But not all analysts think that this is the end of Meta's bull run. Bank of America still gives the stock a "buy" rating.
"AI driven innovation at Meta will lead to new user experiences and recurring revenue models," wrote Jason Post, a BofA analyst, in a recent note. "We think Meta's AI assets are underappreciated in the stock price."
While Zuckerberg's comments about more hiring in 2024 may have made some nervous about increased expenses, the message is clear, wrote KeyBanc analyst Justin Patterson in a note: Meta still plans to grow but at a much more manageable rate.
Both analysts have increased their price targets for Meta stock in the year ahead.
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