Meta stocks are up the most since 2013 on Zuckerberg’s vision

(Bloomberg) — Meta Platforms Inc. is poised for its biggest one-day gain in nearly a decade after Chief Executive Officer Mark Zuckerberg unveiled plans to make the social media giant leaner, more efficient and more purposeful.

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Zuckerberg, who has spent the past year promising a distant future in a digital world called the Metaverse, focused more on immediate issues, like sending the most relevant videos to users at the right time and eventually, in a conversation with investors Wednesday sending meaningful revenue from messaging products. He called 2023 the “Year of Efficiency”.

“We’re working on flattening our organizational structure and removing some layers of middle management to make faster decisions, as well as using AI tools to help our engineers be more productive,” Zuckerberg said on the conference call. “We can still do a lot to improve our productivity, speed and cost structure.”

Meta, which is recovering after the worst year in history for its stock, stands in stark contrast to other tech companies whose shares have been penalized for disappointing prospects. Snapchat owner Snap Inc., for example, plunged 10% after forecasting its first-ever quarterly revenue decline. The industry is facing a drop in ad demand — as well as a change in privacy regulations on Apple Inc.’s iPhone that’s making it harder to serve targeted ads. But Meta has countered the slump with measures, including cutting 11,000 jobs, or 13% of the workforce, in November in its first major layoff.

The company’s share gain is the largest contributor to the Nasdaq 100’s rally on Thursday, adding more than 10% to the benchmark’s rise, according to data from Bloomberg. The tech-heavy gauge is nearing entry into a bull market as investors rush into growth stocks, betting that the Federal Reserve’s rate-hiking cycle is nearing its end.

Meta shares are up 24% to $189.54 as of 10:41 am in New York.

AI strategy

Speaking to investors on Wednesday, Zuckerberg said the company is using AI to improve content recommendation — a strategy to make the platform more attractive to users and advertisers alike. Digital ads account for the bulk of sales, particularly from finance and technology clients. And while ad sales have slumped, the company also pointed to some industries, including health and travel, where companies are spending more.

Fourth-quarter revenue declined 4% to $32.2 billion, the third straight period of declines. Still, the total beat analysts’ estimates, and Meta forecast first-quarter revenue of $26 billion to $28.5 billion, compared to a median guidance of $27.3 billion. Analysts are predicting that Meta will get back on the growth path after the current period.

Snap issued a less optimistic outlook on Tuesday, saying it expects sales to decline in the current period. CEO Evan Spiegel said the ad slump appears to have bottomed out. “Advertising demand hasn’t really improved, but it hasn’t deteriorated significantly either,” Spiegel said in a conference call.

Read more: Snap CEO Spiegel says digital ad slump has leveled off

Meta’s job cuts came in what was otherwise an improvement for the company. Facebook, Meta’s flagship social network, now has more than 2 billion daily users, up more than 70 million from a year ago.

The company also increased its share repurchase authorization by $40 billion, adding to the $10.9 billion left over from previous buyback programs. In the fourth quarter, Meta recorded $4.2 billion in restructuring charges related to job cuts.

Zuckerberg has spent tens of billions of dollars building the Metaverse – a digital world for people to work and play in. These efforts are still in the early stages, which means a majority of the investments aren’t yielding immediate returns.

Still, the Menlo Park, Calif.-based company said spending in 2023 will be $89 billion to $95 billion — lower than Meta previously forecast. That could help allay investor concerns that the company is overspending on its virtual reality ambitions.

Capital expenditures increased to $9.22 billion last quarter. In contrast, in the fourth quarter of 2021, capital expenditures were $5.54 billion.

–Assisted by Subrat Patnaik and Divya Balji.

(Corrects capital spending in the last paragraph of a story published on Feb. 2.)

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