Meta's stock is ready to see its best year to date, having risen 178% by Friday's close. This rebound from a challenging 2022 confirms CEO Mark Zuckerberg's statement that Meta would enjoy a "year of efficiency." John Blackledge, an analyst at Cowen, argued that "if the primary operations are going well and getting better, shareholders will continue to be understanding."
At the start of last year, Meta's stock price had dropped to its lowest level since 2016 amid a crisis of confidence. CEO Mark Zuckerberg's bets on the metaverse were not looking promising and the global rise of TikTok had contributed to sales plummeting. However, this story had changed drastically by the end of 2023. Meta shares had soared 178%, their highest ever, surpassing even the 105% jump seen after Facebook's IPO in 2013. The stock closed on Friday at $334.92, which is below its record high in September 2021, but nevertheless indicates a Tech Boom. Out of the entire S&P 500, only chipmaker Nvidia had a better year, climbing 235%. It is clear that this massive turnaround was due to Mark Zuckerberg's shift towards efficiency and cost-cuts in February. This lead to increased digital advertising, a rebound in sales with a 23% growth in the third quarter and the gaining of market shares over Alphabet and Snap. The biggest factor to this major success was the CEO's change in attitude. Instead of ignoring investor concerns, Zuckerberg embraced them, refocusing the business back to advertising and listening to shareholder worries. Despite the hefty investment still being made into the metaverse, this new approach has proven to be beneficial.
Plenty of challenges await Meta as the calendar turns to 2024. Its latest earnings report highlighted the digital ad market's precariousness, partly due to the ramifications of the Israel-Hamas war. Furthermore, the company has been faced with several new lawsuits that accuse its products of being detrimental and habit-forming to children. Virtual reality remains a niche market, despite Meta's sizeable promotions for its new Quest 3 headsets. John Blackledge, an analyst at Cowen who suggests buying the stock, stated, “So long as the core business is functioning acceptably and gradually improving, I think investors will probably continue to give them a pass.” When asked to provide a response for this story, Meta declined.Two years on since its inception, Meta has had to confront one of the hardest changes to its business since Zuckerberg created the venture in his Harvard dorm room in 2003. Apple made an alteration to its iPhone OS in 2021, granting users greater control over how they receive ads, a shift that struck Meta's ad business and resulted in billions of dollars in lost revenue. Apple’s updated privacy settings had an equivalent, if not more, damaging impact on other online companies, most notably Snap. Nevertheless, Meta persevered and soon invested heavily in AI and reported faster growth in revenue than Google or Snap in the last quarter.The Chinese market has been a significant part of the success story. Susan Li, Meta's financial director, alerted analysts in the earnings call that China's "ad spend among customers in other markets" had boosted their online commerce and gaming. Chinese firms are consequently using Facebook and Instagram to dispatch targeted advertisements to the company's billions of users globally.
Analysts with JMP estimated that $600 million and $200 million was spent on ads from Temu and Shein with Meta respectively in the third quarter, resulting in a 44% surge in Asian advertisers from the previous year. The introduction of TikTok, as well as the pivot to cost-cutting strategies due to increasing inflation and interest rates, hampered Meta's success further. Nevertheless, Zuckerberg persisted with investments in the metaverse despite billions of dollars in losses. This prompted Altimeter Capital Chair and CEO Brad Gerstner to pen an open letter in October 2022 to encourage Meta and Zuckerberg to make cutbacks in staff numbers and metaverse investments. Tom Champion with Piper Sandler commented that the effects of the pandemic had noticeably impacted Meta, with digital media and e-commerce increasing significantly with people having more disposable income. Champion also noted that, while Meta had responded to the trend, the revenue had changed quicker than costs could keep up. Three rounds of layoffs ensued, affecting 25% of the workforce, with Zuckerberg accepting responsibility for miscalculating the post-pandemic re-opening of the economy. and Mark Tepper
Meta's initial job cuts in 2022 jumpstarted the share price surge. Then, in February, Meta announced its 2023 expenditure forecast in the $89-$95 billion range, lower than the initial estimate of $94-$100 billion, sending the stock up 76% in Q1. October saw the company reduce their initial forecast even further, settling on $87-$89 billion. Zuckerberg has protected the Reality Labs unit, the repository of metaverse hardware and software, from being heavily impacted, even though the division has incurred $3.7 billion losses in the previous quarter and over $11 billion in the first nine months of the year. The CEO has been talking about Meta's advancements in AI, with the Llama large language model being an example of this. Not only has AI improved the advertising technology, but it has also helped manage the data centres more efficiently. Moreover, AI is expected to craft better digital assistance for business messaging. Despite these advancements, Needham's Laura Martin is still unconvinced - she has a sell rating for Meta's stock. Her concerns are centred around the lack of control over a platform like iOS or Android, which could lead to major policy changes. Smart TVs are seen as the focus area for advertising investments, as streaming platforms have pulled away viewers from linear television. Moreover, content creators are looking to TikTok and YouTube to fulfil their needs, with 1 in 5 young adults using them "almost constantly". Although the possibility of TikTok being shut down has been put on a backburner and a federal judge in Montana blocked a law that would have resulted in a statewide ban of TikTok, Martin believes this continual competition is detrimental for Meta. Champion believes it is unlikely for TikTok to be banned in America but asserts that "anything can happen".
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