Meta Shares Soar on Revenue Beat, Efficiency Drive

Mark Zuckerberg clearly isn't done cutting costs, and the valuation of his social media empire looks set to double from its November lows. Morningstar analyst Ali Mogharabi sees plenty of upside yet

Lukas Strobl 2 February, 2023 | 12:32AM
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Mark Zuckerberg in February 2022

Meta Platforms (META) shares jumped at the New York open on Thursday after the technology giant reported fourth-quarter revenue beating analysts’ expectations and CEO Mark Zuckerberg signaled that his sweeping efficiency drive would continue.

Nasdaq-listed shares were up nearly 20% to $182 at the start of trading in New York time, heading for their biggest one-day jump in 10 months and the highest price since July of last year. Beleaguered by pessimism about tech stocks in a high-interest-rate environment and doubts about its Metaverse strategy, the stock had troughed at $88.91 in early November.

 

"Meta reported better than expected fourth-quarter results despite currency headwinds, macro uncertainty, and deceleration in overall digital advertising growth,’’ Morningstar analyst Ali Mogharabi said in a note after results were announced Wednesday night. Mogharabi also praised cost-control efforts while user growth accelerates, and maintained his $260 fair value, about 36% higher than Thursday's opening level,

In its earnings release, Meta projected total costs in 2023 at $89-95 billion, down from a previous range of $95-100 billion, reflecting lower growth in payroll expenses and cost of sales. Last November, Meta announced the layoff of 13% of its staff, at the time the most drastic headcount reduction in the downturn that defined 2022 for big tech.

This effort appears to continue, as Zuckerberg declared a "Year of Efficiency’’ in a call with analysts, announcing plans to remove layers of middle management and flatten Meta’s organisational structure.

Mogharabi maintains his wide-moat rating for Meta, reflecting the firm’s massive user base and resulting wealth in demographic data, as well as network effects across Facebook, Instagram, Messenger and WhatsApp. His "Exemplary’’ capital allocation rating is reinforced by Meta’s continuing aggressive buybacks—a total of $27.9 billion in 2022, followed by a further $40 billion increase to its authorization on Wednesday.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Meta Platforms Inc Class A484.03 USD-0.43Rating

About Author

Lukas Strobl  is the editorial manager for EMEA at Morningstar.

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