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Meta - better than expected end to the year

Meta's revenue fell 4% to $32.2bn in the fourth quarter, which was better than expected.

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Meta's revenue fell 4% to $32.2bn in the fourth quarter, which was better than expected. Costs and expenses rose 22% to $25.8bn, including a 38.7% increase in Research & Development spending. This resulted in operating profit falling by 49% to $6.4bn.

The number of daily active people (DAP) using one of Meta's sites, including Facebook, Messenger and Instagram, was 2.96bn, up 5% compared to last year.

Meta said it took "several measures to pursue greater efficiency and to realign our business and strategic priorities. This includes a facilities consolidation strategy to sublease, early terminate, or abandon several office buildings under operating leases", and the group will also be laying off approximately 11,000 employees. Meta has also cancelled several data centre projects. In total, Meta has recognised restructuring charges of $4.2bn in the fourth quarter.

Revenue in the new financial quarter is expected to be $26 - $28.5bn. Total expenses for the full year are now expected to come in at $89 - $95bn, which is lower than previous guidance of $94 - $100bn.

The group had a net cash position of $30.8bn as at the end of the quarter.

Meta shares rose 20.2% following the announcement.

View the latest Meta share price and how to deal

Our view

Meta has given investors what they wanted. A serious re-think of the cost base and a promise to refocus energy on its core family of apps (including, Facebook, Instagram and WhatsApp). Together with a drop in revenue that was less severe than expected, Meta's seen an enormous rebound in its valuation - driven more by relief rather than celebration.

Meta's restructuring efforts include laying off around 11,000 employees. Job cuts are always regrettable, but from a strategic point of view the move makes sense as Mark Zuckerberg works to reduce the company's serious case of bloat. Making sure a business strategy is sustainable and focussed is always important, but that's especially true for Meta. The group relies on advertising revenue, and this is a tough place to be as consumer spending and confidence is suffering.

Meta's platforms don't hold as much sway with marketing teams as they need to. This isn't the first time the social media giant has lagged, and that reflects the fact that competition is fierce, with younger entrants like TikTok a serious opponent. In such uncertain and difficult times, other big names are struggling because marketing teams spend less when things are tough.

Another big question mark from here is how the group will propel meaningful growth. Mounting competition, iOS privacy changes and difficulty monetising video content are all headwinds keeping those revenue expectations muted.

The difficulties ahead aren't lost on management, and that's where the grand metaverse plans come in. Unfortunately, the roll out and take up of the group's virtual reality products has had a sluggish start, despite the seemingly never-ending upwards spiral of the research and development budget. This is problematic because Meta doesn't have other income streams to fall back on, so as it stands, when advertisers turn off the tap, Meta's revenue funnel runs dry very quickly.

We're encouraged that spending on this untested product is set to be redirected to getting Meta's main house in order. But the Metaverse is still churning away in the background - it's not been given up. That could have implications for investor sentiment in the future.

Meta's balance sheet is awash with cash. It has resources to stomach ups and downs.

Overall, Meta's valuation has seen a sharp revision upwards, and we share a lot of the enthusiasm. Billions of people use one of Meta's apps every day and its newfound focus is the right move. But investors need to keep in mind the stock is likely to remain volatile, thanks to a combination of tough macro-economic conditions, and lingering confusion around plans for long-term growth.

Meta key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Sophie Lund-Yates
Sophie Lund-Yates
Lead Equity Analyst

Sophie is a lead on our Equity Research team, providing research and regular articles on a selection of individual companies and wider sectors. Sophie's specialities are Retail, Fast Moving Consumer Goods (FMCG), Aerospace & Defence as well as a few of the big tech names including Facebook and Apple.

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Article history
Published: 2nd February 2023