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HomeBusinessLittle obvious substance to Meta rally

Little obvious substance to Meta rally

Shares in the black hole known as Meta Platforms starred on Wednesday with a 20% surge after the company produced December quarter figures which were better than expected – or rather, not as bad as the market was expecting – and Meta decided to slip a bone to suffering shareholders with a record $US40 billion buyback.

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That’s more than the $US27.9 billion bought back under the old buyback program with Meta underspending the old program by nearly $US11 billion it will have upwards of $US50 billion to reward those shareholders who stuck through the company’s 2022 annus horribilis and a 70% slide in value.

And seeing the Meta December quarter report revealed that the company ‘only’ had just over $US40 billion in cash and other liquid investments on hand at December 31, Meta will be using up a lot of the powder it has been holding in reserve for a rainy day.

Of course, that math doesn’t take into account the billions to be saved from sacking 11,000 people last November with the savings diverted straight to shareholders this year.

This is how Meta described the change in head count in its release: “Headcount was 86,482 as of December 31, 2022, an increase of 20% year-over-year. Our reported headcount includes a substantial majority of the approximately 11,000 employees impacted by the layoff we announced in November 2022, who will no longer be reflected in our headcount by the end of the first quarter of 2023.”

Meta shares have risen since that announcement in November and yesterday’s news of the record buyback (which nicely obscured a very weak December quarter performance) saw the shares close up just over 20%, adding around $US80 billion to the company’s market value.

The fourth quarter figures were not pretty, hence the buyback.

Meta Platforms reported a 55% fall in quarterly profit, hurt by a hefty charge related to cost-cutting moves like layoffs, office closures and an overhaul of its data centre strategy. That was a $US4.2 billion write-off in the quarter.

Net income fell to $US4.65 billion in the latest quarter down 45%, from the $IS10.29 billion, in the same quarter of 2021.

Revenue for the quarter dipped to $US32.1 billion from $US33.6 billion.

For the year Meta’s revenue fell 1% to $US116.6 billion from $US117.9 billion and net income plunged 41% to $US23.2 billion from $US39.37 billion.

The key metric that hurt Meta was the continuing slide in the price advertisers are willing to pay to advertise on Meta’s platforms such as Facebook and Instagram.

Yes, the number of ad impressions (people noticing them) rose, but the price fell – it’s a no-win situation for the company, no matter how many shares it buys back.

“In the fourth quarter of 2022, ad impressions delivered across our Family of Apps increased by 23% year-over-year and the average price per ad decreased by 22% year-over-year. For the full year 2022, ad impressions increased by 18% year-over-year and the average price per ad decreased by 16% year-over-year.”

And the famed Metaverse that Mark Zuckerberg is all so gung ho about continues to be a large black hole. Meta’s Reality Labs unit had a $US4.28 billion loss in the fourth quarter, bringing its total operating loss for 2022 to $US13.72 billion. That’s a serious black hole.

Facebook changed its name to Meta in late 2021, but the company still relies on (weakening) advertising for substantially all of its revenue.

Reality Labs generated $US727 million in the fourth quarter, and $US2.16 billion in revenue for all of 2022 – down from $US2.27 billion in 2021 – including sales of Quest headsets. In other words, the division lost more than six times the amount of money it generated in revenue, while accounting for less than 2% of total sales at Meta.

No wonder Zuckerberg and the Meta board set the buyback at $US40 billion and cut 11,000 jobs – the company’s shares shed 70% of their value in 2022 and even though they are up 20% in the past month (before trading on Thursday), there’s obviously a lot of cranky investors who do not like the money being wasted on the metaverse and AI generally.

The company is facing rising competition across the board – TikTok is the most obvious competitor causing pain, but so are the privacy standards of Apple and its fleet of devices which are crimping the sort of easy money Meta/Facebook once made from ads targeting users of those various devices.

For example, my Mac Air tells me how many trackers it had blocked and it is in the hundreds a month – and I don’t use social media at all.

Nice to have Big Brother in your corner for once.

Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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