Meta Stock (NASDAQ:META)
Through a variety of channels, such as mobile devices, personal computers, and more recently virtual reality headsets, Meta Platforms, Inc. (NASDAQ:META) provides a range of solutions that enable connection and interaction for individuals, communities, and enterprises. With over 95% of revenues coming from its Family of Apps (FoA) segment, which includes its platforms: Facebook, Instagram, WhatsApp, and Messenger, Meta makes money through both Reality Labs and its Family of Apps (FoA) divisions.
With a roughly 25% increase in share price since the year’s beginning, Meta has had a strong start to the year. This does not account for the significant increase following the fourth quarter earnings call. Despite the gain, management decided to increase the share buyback program by an additional $40 billion, indicating that Meta stock currently has a relatively low market valuation. Due to its sustained dominance in the worldwide digital advertising market, Meta continues to have solid fundamentals and appealing potential for future growth in the metaverse and artificial intelligence markets. As a result, I still think Meta is a buy. Let’s review the outcomes for the most recent quarter.
The fourth quarter of 2022 saw Meta post revenues of $32.2 billion, a 4.5% decline from the same quarter the previous year. Due to the hazy macroeconomic environment, the decline was mostly related to sluggish advertising demand. Despite this drop, the corporation kept the gas pedal firmly depressed when it came to R&D costs, which came to $9.8 billion, or 30% of revenues, during the quarter. Along with this cost, Meta also incurred a $4.2 billion restructuring charge as a result of a number of management-led initiatives. These actions include its plan to consolidate its facilities through subleasing, the choice to terminate or abandon multiple office buildings with operating leases early, and the dismissal of roughly 11,000 workers.
The Family of Apps sector continued to be the company’s bastion in the fourth quarter, bringing in $31.4 billion in sales and $10.7 billion in operating income. Both revenue and operating income fell, mostly as a result of weak advertising demand and a sizable $3.8 billion restructuring charge for the quarter.
Highlights of the Reality Labs Segment’s Finances
Due to lower income from Quest 2, the Meta Reality Labs segment’s contribution to the company’s financials decreased by 17% to $727 million for the quarter. The significant operating loss, which came to $4.3 billion, was mostly caused by costs associated with employees and restructuring. It’s significant to note that Reality Labs includes investments in Meta’s three primary priority areas.
These are Augmented Reality, which management claims to be the most important field, Virtual Reality, which is beginning to pick up steam with a number of product lines, and finally the Metaverse software.
During the conference call, management stated that it anticipates Reality Labs’ losses to rise in 2023 and that it will keep making significant investments in this field. Investors should be aware that Meta Platforms consider these possibilities long-term investments, with money going toward upcoming computing platforms, glasses, headsets, and software to power them. Although the Reality Labs division will continue to hurt the company’s bottom line, there may be some big benefits down the road.
Investor Returns
The management of Meta Platforms repurchased $6.9 billion worth of ordinary stock during the fourth quarter. Following these purchases, there was $10.9 billion left over for share repurchases. Despite this, management announced an expansion of its share repurchase program by $40 billion, giving the corporation a $50 billion gain in firepower. The management might redeem more than 10% of the company’s shares from the market given the present market valuation of the business.
Management of Meta Platforms issued optimistic forecasts for 2023, anticipating expenses to be much lower than originally anticipated. In 2023, management now anticipates spending to range between $89 billion and $95 billion, which is a $5 billion drop from the prior estimate.
Additionally, management anticipates recording restructuring charges of approximately $1 billion in 2023, which could indicate that the worst of the restructuring expenses is behind us.
Last but not least, management anticipates capital spending to be in the $30 to 33 billion areas, which would be roughly in line with the $31 billion invested in the capital during 2022. This is because Meta will switch to a new, more cost-effective data center architecture in 2023, which will result in lesser spending on data center construction.
To Sum Up
I’m still optimistic about Meta stock because I think it offers great long-term investment potential. The business has strong financial foundations and a dominating position in the worldwide digital advertising market.
These strategic expenditures can position Meta for future growth in the artificial intelligence and metaverse business, even if the company is suffering significant losses while pursuing long-term prospects.
Of course, there is a chance that these investments won’t pan out. However, if we consider the $2 trillion opportunity in the metaverse and artificial intelligence markets together, I think these investments are sound. Last but not least, it should be noted that the management of Meta Platforms will keep looking for ways to increase profitability and restore value to shareholders. The $40 billion increase in the share repurchase program is proof of this.
Featured Image: Unsplash @ penfer
