Meta: “The Year of Efficiency”
Summary of Meta’s Q4 22 Earnings Call
Summary
Total revenue for Q4 was $32.2 billion, down 4%. If FX impacts aren’t included then on a constant currency basis, total revenue for the quarter was up 2% year-over-year.
Growth in daily active users and monthly active users continues to be a bright spot for the company. The company reached more than 3.7 billion people monthly across Family of Apps. On Facebook, it reached 2 billion daily active users and almost 3 billion monthly active users. This is the highest it’s ever been.
Facebook and Instagram were the first two pillars of the company, but they are currently going through a shift. They will now be organized more around relevant content that is generated from the company’s AI systems instead of the people and accounts they follow.
Messaging online is the third pillar of the company and has huge potential. Click-to-message ads is currently at a run rate of $10 billion. The WhatsApp Business Platform is a major opportunity as more and more businesses onboard to this platform. The WhatsApp Business Platform allows businesses to answer customer questions, give updates, and sell directly in chat.
There are still some headwinds on ad revenue. Ad revenue growth was flat in North America, Asia Pacific declined 3%, Europe declined 16%, and Rest of World grew 5%. A weaker economy is putting pressure on advertiser demand and pricing.
Average price per ad decreased 22% during Q4. A strong dollar was another headwind.
The Year of Efficiency
Mark made it clear on the call that the company will be focusing on efficiency. Some of the steps the company has taken to focus on efficiency are: laying off employees, deprioritizing projects, consolidating office facilities, streamlining future data centers to a new architecture, working with the infrastructure team on how they can deliver while spending less on capex, removing some layers of middle management to flatten out the organizational structure, and rolling out AI tools that allow the company’s engineers to be more productive.
The company recorded $4.2 billion of restructuring costs in 2022 to implement all of these changes to make the company more efficient, and there will be more costs coming in 2023.
Reels
Monetizing Reels will be a primary focus for the company this upcoming year. Meta has historically built up a large user base on a new product before monetizing it. Mark feels that Reels is currently at the point where the user base, with hundreds of millions of users and growing, is large enough where they can start to ramp up advertising.
Reels has been a drag on profitability in the last couple quarters as it has been losing money by taking away advertising share away from Feed. I view this as more of an opportunity cost as opposed to actually losing money since Feed monetizes much more efficiently than Reels does.
According to Mark, “monetization efficiency on Facebook has doubled in the past 6 months.” With Reels continuing to grow, this should give an extra boost to advertising revenue this year.
Realty Labs
There are three areas of Reality Labs:
1. Augmented Reality – this is the biggest area but it’s long term and there are still a lot of research problems here that will make it more difficult to bring products to market.
2. Virtual Reality – this area is starting to ramp up. This includes Quest 2 and Quest Pro.
3. Metaverse Software – this area has the smallest budget because it’s software, which is less capital intensive to build than hardware, but according to Mark, Metaverse software and the social platform could be the most critical part of what they are doing in Realty Labs.
The operating loss in the Realty Labs segment was $4.3 billion.
ATT
ATT is still negatively impacting revenue, but the impact is softening due to tools that the company is rolling out. Some of the tools that were discussed on the call were CAPI Gateway, on-site conversions, click-to-messaging ads, lead ads, shop ads and AI investments in privacy enhancing technologies.
Advertisers saw over 20% more conversions last quarter compared to the year before so these tools seem be having a positive impact so far.
Share Buybacks
The company continues to buy back shares. In the fourth quarter, Meta bought back $6.9 billion of shares. This brought their total share repurchases to $27.9 billion for the full year.
There is $10.9 billion remaining on the company’s previous buyback authorization and they announced an increase of another $40 billion in stock buyback authorizations on the earnings call.
Guidance
The company is guiding for Q1 23 revenue of $26B - $28.5B, full-year 2023 expenses of $89B-$95B (down from previous guidance of $94B-$100B), and full-year 2023 capital expenditures of $30B-$33B (down from previous guidance of $34B-$37B).
The decline in guidance for 2023 expenses is due to lower anticipated payroll expenses and lower cost of revenue. The decline in guidance for 2023 capex is due to lower data center construction spend as the company transitions to a new data center architecture. This new architecture is expected to be more cost efficient and it can support both AI and non-AI workloads. Almost all of these capital expenditures will support the Family of Apps.
As management continues to reiterate that the majority of capex is for the Family of Apps, and not Reality Labs, this should give a lot of relief to the stock price from the Street after a dismal Q3 22 earnings call that most likely led the Street to believe that all of the capex was intended for Realty Labs. It is reassuring that these large investments are for the Family of Apps though and not Realty Labs.
Disclosure: I own shares of Meta at the time of writing.