Knockout Meta profit wasn’t even the best surprise of the quarter for investors
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Meta Platforms delivered a home-run earnings report after the closing bell Thursday — beating on sales and earnings while declaring its first-ever dividend and boosting its buyback. The bullish combination sent shares soaring in extended trading and fortified our belief in one of our largest positions. Revenue in the three months ended Dec. 31 rose nearly 25% year over year to $40.11 billion, easily topping the $39.18 billion expected by analysts, according to estimates compiled by LSEG, formerly Refinitv. Earnings per share (EPS) in the fourth quarter totaled $5.33, exceeding Wall Street’s $4.96 estimate, LSEG data showed. In the year-ago period, the Instagram and Facebook parent earned $1.76 per share. META 1Y mountain Meta Platforms 1 year Meta soared more than 15% after hours to roughly $455 per share — putting it well on its way to opening Friday’s session at a new all-time high. Meta’s registered its current record high close of $401.02 per share on Monday. Bottom line Meta Platforms stole the show Thursday evening. As if 25% revenue growth, operating margins above 40% (again) and robust first-quarter guidance weren’t enough, the social media giant tossed in a quarterly dividend declaration — 50 cents a share, payable in March — and an additional $50 billion stock buyback authorization. At year-end, Meta had $30.93 billion remaining in its prior buyback program. It’s no wonder the stock was flying in extended trading. Putting aside the strong fourth-quarter financial performance for a second, Meta’s decision to institute a quarterly dividend sends a bright signal of long-term confidence in its business to the investment community. To be sure, it’s a modest payout to start — carrying an annualized yield of around 0.5% based on Thursday’s closing stock price. But the action itself speaks the loudest right now because once a company heads down the dividend-paying road, it’s difficult to turn back. In other words, management teams don’t make this decision lightly. And it’s particularly notable considering Meta is not too far removed from a bruising 2022, during which its stock lost two-thirds of its value and traded at its lowest levels since 2016. Now, after the resounding success of CEO Mark Zuckerberg’s “year of efficiency,” which led to the near tripling of the stock price in 2023, Meta will soon complement its hearty buyback activity with a dividend. Another bullish implication: Paying an annual dividend could make Meta eligible for funds that require dividends, thereby increasing institutional investment in the stock. There was a lot to like in Meta’s quarterly results, particularly increased engagement across Instagram and its broader app universe and management’s confirmation that its TikTok competitor Reels is finally a positive contributor to revenue. In light of all the encouraging new information, we’re lifting our price target on Meta to $500 per share from $350, while maintaining our wait-for-a-pullback 2 rating on the stock. Quarterly commentary That’s a lot of green in the earnings table above — the only line item that missed estimates was operating losses at Meta’s Reality Labs division, which is home to its metaverse ambitions and virtual and augmented reality headsets and connected glasses. The quarter was impressive before even considering the dividend and stock buyback announcements. “Our communities are growing and our business is back on track,” Zuckerberg said on the earnings call. Fourth-quarter revenue of $40.11 billion and operating income of $16.38 billion blew estimates out of the water, increasing 25% and 156% compared with the same period a year ago. The strong revenue growth is further proof that Meta’s deft use of artificial intelligence to drive user engagement and improve advertising performance across its apps is paying off in a big way. Operating margins also stayed above 40% for the second straight quarter, ticking up to 40.8% in the three months ended Dec. 31 compared with 40.3% in Q3. Daily and monthly active users of Meta’s Family of Apps — including Facebook, Instagram, WhatsApp, and Messenger — increased in the fourth quarter compared with the prior three-month period, to 3.19 billion and 3.98 billion, respectively. The percentage of daily active users versus monthly users rose to 80.15%, the first material increase on this metric in quite some time. In recent years, that figure had largely hovered around 79%. This is a sign that people are using Meta’s apps with increasing frequency, something advertisers are likely to take note of. Management offered encouraging commentary on the sustained growth of Reels, its short-term video competitor to TikTok, and other video content across its apps, more broadly. Total video watch time grew more than 25% on an annual basis in the fourth quarter, CFO Susan Li said, fueled by ongoing ranking improvements that utilize AI. And, crucially, CEO Mark Zuckerberg confirmed that Reels is now a positive contributor to net revenue — an expected, but welcome development after Reels became neutral to overall ad revenue in the third quarter. During Reels’ rollout, as advertisers were less familiar with using the short-form video format, the platform had been a drag to overall revenue. Generative AI, as expected, was a big focus of the earnings call. Zuckerberg spent a few minutes at the start discussing Meta’s long-term vision, including what he believes are the benefits of its open-source approach and its strategy to ensure it has the necessary computing resources to keep up with the demands of generative AI workloads. He also noted the company’s advanced virtual assistant, Meta AI, was made fully available in the U.S. by the end of 2023, and the firm is testing more than a dozen other generative AI features. But investors across the tech industry are increasingly wondering when all the spending on generative AI will translate to revenue – and that’s no different for Meta. On this point, finance chief Li said Meta does not expect its generative AI offerings to be a “meaningful” revenue driver in 2024, though the potential longer term is there. Nevertheless, Li said Meta’s suite of generative AI tools for advertisers is its biggest near-term monetization opportunity. The tools are already seeing adoption and providing value to advertisers “even at this early stage,” she said. Further down the road, Li indicated that business messaging is another compelling opportunity to make money from generative AI. She said Meta is testing generative AI business chats in small samples now, though she said it will take some time to make them more useful to a wider range of businesses. This is something to watch because business messaging, across WhatsApp and Messenger, has become a larger point of emphasis for management following the success of Reels. It wasn’t all bad in the Reality Labs division, despite the larger-than-expected quarterly loss. Revenue – which is largely device sales, including Quest virtual-reality headsets and the second-generation Ray-Ban smart glasses — crossed the $1 billion mark for the first time in a single quarter, while Wall Street was only looking for $728 million. Zuckerberg said its partner on the glasses, Ray-Ban owner EssilorLuxottica, has increased production above its initial plans due to a strong start to sales. Jim Cramer has previously argued the Ray-Ban glasses have flown under Wall Street’s radar and may represent Meta’s first hit for the company’s metaverse ambitions. In recent years, Meta has dominated the market for VR headsets. But it’s now going to get a competitor in Apple ‘s $3,500 and up Vision Pro mixed reality headset, which goes on sale Friday. The Vision Pro saw strong preorders, and UBS analysts think that Apple’s first new product category since the Watch in 2015 could do $1.4 billion in revenue in 2024 . The highest-end Meta Quest Pro costs less than a third of the Vision Pro. Meta’s Quest 3 VR headset starts at $500 . On its own post-earnings conference call Thursday evening, Apple didn’t talk about Vision Pro financials . Guidance Meta expects first-quarter 2024 revenue between $34.5 billion and $37 billion, a very strong guide. Even at the low end of the range, it exceeds the consensus analyst estimate of $33.93 billion, according to FactSet. Li said the Q1 outlook reflects a continuation of fourth-quarter trends, namely “strong broad-based advertising demand across verticals,” particularly within e-commerce and gaming, and the sustained benefit of improving ad performance. Meta left its full-year total expenses outlook unchanged in the range of $94 billion to $99 billion, which it previously offered investors in October alongside third-quarter results. However, management increased the high end of its 2024 capital expenditures outlook to $37 billion from $35 billion. The updated range is now $30 billion to $37 billion. We can live with this change, though, because this spending is largely tied to buying servers — both AI-specific ones containing Club holding Nvidia’s chips and general computing — and data-center construction, more generally. (Jim Cramer’s Charitable Trust is long META, NVDA, AAPL. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. 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In an aerial view, people gather in front of a sign posted at Meta headquarters in Menlo Park, California, July 7, 2023.
Justin Sullivan | Getty Images
Meta Platforms delivered a home-run earnings report after the closing bell Thursday — beating on sales and earnings while declaring its first-ever dividend and boosting its buyback. The bullish combination sent shares soaring in extended trading and fortified our belief in one of our largest positions.
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