Facebook's parent company Meta Platforms released its earnings report after the market on Thursday, showing that, benefiting from the digital advertising market's still strong, the company's fourth quarter results and first quarter guidance generally exceeded expectations. In particular, the number of active users in the fourth quarter exceeded expectations. The company announced an increase of 50 billion US dollars in stock repurchases while paying dividends for the first time in history. Meta's US share rally extended to 14% after the market. The company said that the strong advertising business is mainly due to Chinese advertisers investing a lot of money.

The overall performance exceeded expectations and rose 14% after the market

According to financial reports, Meta's revenue for the fourth quarter was US$40.11 billion, up 25% year-on-year, higher than analysts' expectations of US$39.01 billion. Among them, advertising revenue was US$38.71 billion, higher than analysts' expectations of US$37.81 billion; the App Family's revenue was US$39.04 billion, higher than analysts' expectations of US$38.16 billion; and Reality Labs (Reality Labs) had revenue of US$1.07 billion, higher than analysts' expectations of US$812.6 million.

Net profit for the fourth quarter was $14 billion, a threefold increase over the previous year. EPS was $5.33, higher than analysts' expectations of $4.91. The APP family's operating profit was US$21.03 billion, higher than analysts' expectations of US$19.65 billion; the actual laboratory operating loss was US$4.65 billion, which fell short of analysts' expectations of US$4.1 billion.

Meanwhile, Facebook had 2.11 billion daily active users in the fourth quarter, higher than analysts' expectations of 2.07 billion; the number of monthly active users in the fourth quarter was 3.07 billion, higher than analysts' expectations of 3.06 billion.

Meta said that by December 31, 2023, the company completed the layoff plan initiated in 2022, as well as the data center incentive mechanism.

Meta also paid out the first dividend in the company's history, with a cash dividend of $0.50 per share. The company announced an additional $50 billion in share buybacks. According to the data, the company had a total of 65.4 billion US dollars in cash up to last year.

Meta estimates overall spending of $94 billion to $99 billion in 2024, analysts expect $96.45 billion, and infrastructure-related costs are expected to increase in 2024. Meanwhile, Meta expects the total number of hires to increase, and the company is cutting “current recruitment numbers.” Meta expects revenue of $34.5 billion to $37 billion for the first quarter, which is higher than analysts' expectations of $33.64 billion.

Driven by good performance, Meta's US stock surged 14% after the market. By Thursday's close, the stock had risen 12% this year and almost quadrupled last year.

Zuckerberg said in a statement: “We had a great quarter and our community and business continue to grow. We've made significant progress in advancing our vision of artificial intelligence and the metaverse.”

Analysts at investment bank Evercore ISI believe that this is one of the most impressive performance reports in Meta Platforms' history. The dividend payout is a bit surprising, but it is definitely a benefit.

The advertising business contributed greatly to improving e-commerce in China

In recent years, Meta has been trying to balance huge spending on technologies such as artificial intelligence and virtual reality to ensure that its core digital advertising business continues to grow. After the first contraction of business in 2022, CEO Zuckerberg worked to reverse the company's situation and called 2023 the “Year of Efficiency,” cutting thousands of jobs.

Analysts said that Meta's cost reduction measures have begun to really show results in terms of revenue, and believe that in the field of digital advertising, Meta's prospects are becoming more and more optimistic. Although Meta is diversifying into fields such as virtual reality headsets, digital advertising is still the backbone of its revenue.

Zuckerberg believes that advances in artificial intelligence are due to improvements in advertising business, and that the company's advertising business is growing faster than competitor Google. Meta's financial recovery over the past year was partly due to Chinese e-commerce, which increased user spending globally.

Meta's chief financial officer Susan Lee said that the sharp increase in revenue in the fourth quarter was due to high spending by Chinese advertisers and video content recommended by artificial intelligence, and the average daily viewing time of the company's apps increased 25% compared to the same period last year. In an earnings conference call, Susan Lee said that in 2023, revenue from Chinese advertisers accounted for 10% of Meta's total revenue, contributing 5 percentage points to the increase in global revenue.

In her previous earnings report, Susan Lee also emphasized the importance of business from China. Although she did not name a specific company, Temu and Shein, the rapidly growing emerging companies from China, have been investing large amounts of advertising money on Facebook and Instagram.

Issuing dividends for the first time in history may mean that there aren't many good places for cash

Now, as Meta invests heavily in virtual reality and artificial intelligence, the company is increasing shareholder engagement, offering a quarterly dividend of 50 cents per share and authorizing a $50 billion share repurchase program. The last time Meta authorized a buyback of this size was in October 2021, when the number of active users of the company's social media app was still growing at an impressive rate. Based on the current market value of $1 trillion, this expanded repurchase authorization is equivalent to approximately 5% of tradable shares.

The company will pay a dividend of 50 cents per share, on par with its peers Apple, Microsoft, and Oracle, all of which pay regular dividends. This is also the first time Meta has paid dividends since its inception. This dividend will be paid in March to all shareholders holding shares as of February 22, and the board of directors plans to pay cash dividends every quarter according to market conditions.

By contrast, Amazon and Google have never paid dividends. Microsoft first paid dividends in 2003, while Oracle began paying dividends in 2009.

Analysts believe Meta's move sends a signal about the company's potential. While it shows that management is optimistic about growth prospects, it also hints at the company's limitations in utilizing cash reserves. Generally, faster growing tech companies avoid paying dividends and instead choose to use profits to develop new products or make major acquisitions. Although Meta is investing heavily in artificial intelligence projects, its acquisition prospects are gradually shrinking in the face of regulatory opposition.

Zuckerberg: Will continue to streamline operations

For this year, Meta plans to invest $94 billion to $99 billion, covering higher infrastructure-related costs, selectively increasing personnel in higher-cost technology positions, and developing in augmented reality and virtual reality. Last quarter, the company said it plans to defer some expenses until 2024, such as adding new personnel and infrastructure.

Zuckerberg said he has a deeper understanding of streamlining the company's operations and is unwilling to immediately carry out large-scale recruitment. He said he wants to keep the recruitment of new employees “relatively low” to keep the company lean.

The company also said it expects a “significant increase” in operating losses for the Reality Labs division, which produces smart glasses and headsets, as the division continues to invest in product development. But it's worth mentioning that for the first time, the division achieved more than $1 billion in quarterly revenue.

Keep betting on artificial intelligence

Prior to Meta's results, reports from other tech giants showed that they failed to prove to Wall Street that full investment in artificial intelligence was beginning to pay off. Like Meta, most of its revenue comes from digital advertising and Google's parent company Alphabet Inc., which also invests heavily in artificial intelligence, shows that its core search advertising business has weakened, causing its stock price to fall.

Meta has been investing in record amounts in developing artificial intelligence technology, including expanding its core advertising business by improving ad targeting and AI-recommended content and the infrastructure needed to operate. At the same time, it hasn't given up on its efforts to build a virtual reality metaverse. Zuckerberg previously even changed the name of his company from Facebook to Meta in order to bet on the metaverse.

Meta's approach to artificial intelligence competitions is different from its peers. For the most part, the company provides developers with large language models for free, and Meta believes this open strategy will help improve technology more quickly.

Zuckerberg said that this new generation of artificial intelligence will generate a large number of good assistants. This will be one of the main values of this generation of AI. It is expected that MetaAI assistants will be promoted to more Meta apps later in 2024.

Wall Street News previously reported that Zuckerberg updated the news on Instagram, revealing “Meta is currently training Llama 3.” By the end of this year, Meta will have about 350,000 Nvidia H100 units, and if other GPUs are included, it will have about 600,000 H100 equivalent computing power.

Zuckerberg also said that the two existing AI research efforts (FAIR and GenAI) will join forces to “support our long-term goal of building universal intelligence, responsibly open source, and make it usable and useful to everyone in our everyday lives.”

Monthly active user data will not be published in the future

Despite Meta's expectations for artificial intelligence, investors' focus on the number of users of its app has waned. Today, a total of nearly 4 billion people use the platform every month on Instagram, Facebook, and WhatsApp. Meta says it will no longer report this metric in financial reports, nor the number of daily and monthly users of its flagship Facebook app.

Beginning this quarter, the company will instead report year-on-year changes in ad impressions and average ad prices across regions, while continuing to report the number of daily active users for its app line.

Zuckerberg said that the short video platform “Reels” on Instagram and Facebook is now being re-shared 3.5 billion times a day, and short video ads are now contributing net revenue to these two apps. He said that continuing to improve these videos, the ads offered here, and the algorithms that personalize users will continue to be “the focus.”

Editor/Somer