Head of Equity Strategy
Summary: Investors very excited about Meta's Q4 earnings releases signalling much lower operating expenses and capital expenditures than previously guided providing the pathway to improved profitability throughout the year. At the same time the Q1 revenue guidance is suggesting that Meta's social media platforms are performing better in the current downturn in online advertising than its smaller competitor Snap. Meta shares were up 20% in extended trading hours last night.
Mark Zuckerberg has listened to shareholders
After the Q3 earnings release investors were furious expressing frustration with Mark Zuckerberg and the management team which did not appreciate the cost concerns of shareholders. The fallout was a shocking decline in the share price below $100. This likely created the much needed wake-up call for Meta which at that point was facing enormous internal pressures from employees seeing their stock options value vanish risking a potential brain-drain from the company.
Forget the headlines about Q4 revenue beat and EPS figures last night. What investors cared about was the cost signals from Meta guiding fiscal year operating expenses of $89-95bn down from previously guidance of $95bn-100bn. The capital expenditures outlook for the fiscal year was lowered to $30-33bn from previously $34-37bn. This move paves the road for a return of profitability and thus tailwind in earnings from now in the case the online advertising market also rebounds from current levels. If Meta can deliver on the “Year of Efficiency” then the narrative will dramatically change from now on. It is also clear from the revenue guidance for Q1 at $26-28.5bn vs est. $27.3bn is a better comparison with a year ago compared to what Snap announced two days ago. This is indicating that the Meta social media platforms are performing better in the current advertising downturn than the smaller platform Snapchat. Investors were excited about the signals from Meta sending its shares up 20% in extended trading.
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