For years, Facebook and its CEO Mark Zuckerberg invested heavily in growth, including in areas like virtual reality with unproven potential. But after a brutal year in which the company lost more than $600 billion in market value, Zuckerberg has started speaking Wall Street’s language — and they are rewarding him for it.
Facebook-parent Meta on Wednesday posted its third straight quarterly decline in revenue and a sharp drop in profit for the final three months of 2022, as it confronted broader economic uncertainty, heightened competition in the social media market and incurred significant charges from a recent round of layoffs.
But the company nonetheless outperformed Wall Street analysts’ expectations for sales. Moreover, it pledged to focus on “efficiency,” lowered its forecast for capital expenditures in the year ahead and announced plans to boost its share repurchase plan by $40 billion. All of that helped send shares of Meta up nearly 20% in after hours trading Wednesday.
“Our management theme for 2023 is the ‘Year of Efficiency’ and we’re focused on becoming a stronger and more nimble organization,” Zuckerberg said in a statement with the earnings results.
Meta reported nearly $32.2 billion in revenue for the quarter, down 4% from the year prior but ahead of the $31.5 billion analysts had projected. The social media giant’s quarterly net income was just shy of $4.7 billion, down 55% from the same period in the prior year and below analysts’ expectations.
Meta announced plans to lay off around 11,000 employees in November. The company also currently has a broad hiring freeze in place and plans to limit hiring throughout the year, Meta CFO Susan Li said on a call with analysts Wednesday.
In its earnings report, Meta said it has cut its guidance for capital expenditures for 2023 down slightly to between $30 billion and $33 billion, citing plans for lower data center construction spending. It also added that “substantially all of our capital expenditures continue to support the Family of Apps,” a term that refers to Facebook, Instagram and WhatsApp, perhaps in an effort to reassure investors skeptical of its plan to center its business model around the future version of the internet it calls the metaverse.
For the first quarter of 2023, Meta expects revenue between $26 and $28.5 billion, the upper end of which would represent an increase from the year-ago quarter and would break Meta’s streak of consecutive quarterly revenue declines. The guidance is somewhat better than Snapchat-parent Snap’s from earlier in the week, which said it expects first quarter revenue to fall between 2% and 10% compared to the previous year.
Zuckerberg explained the focus on efficiency during the analyst call by acknowledging that for the first 18 years of the company’s history, its revenue grew sharply each year. “And then obviously that changed very dramatically in 2022, where our revenue was negative growth for the first time in the company’s history … and we don’t anticipate that’s going to continue but I don’t necessarily think it’s going to go back to the way it was before.”
He added: “So I think this is a pretty rapid phase change there that I think just forced us to basically take a step back and say, okay, we can’t just treat everything like it’s hyper-growth,” although Zuckerberg said he thinks the shift in mindset “actually makes us better.”
Meta’s user numbers also marked a bright spot from Wednesday’s report. Facebook now has 2 billion daily active users, and Meta’s family of apps grew its daily active people by 5% year-over-year to 2.96 billion, a welcome sign for the company following concerns about stagnant user growth last year.
The company’s core advertising business fell just over 4% to nearly $31.3 billion, a “better-than-expected” result that “should refute concerns over the state of the digital advertising industry,” said Jesse Cohen, senior analyst at Investing.com. Li said that ad revenue growth from its top advertising verticals, online commerce and consumer packaged goods, remained negative during the December quarter but fell at a slower rate than in the previous quarter.
Still, Meta’s average price per ad fell 22% year-over-year during the December quarter, and 16% overall in 2022, as the company grapples with Apple’s app tracking changes and increased competition from the likes of TikTok.
The company also lost a total of more than $13.7 billion in its “Reality Labs” unit which houses its metaverse efforts. Fourth quarter Reality Labs revenue fell 17% to $727 million, due to lower sales of its Quest 2 headset, the company said.