Post-earnings boost pushes stock price close to the $500 mark, will Meta Platforms' upward trend peak soon?

In the past year, Meta Platforms has continued to achieve outstanding performance, and its performance in 2024 remains strong. In early February, the company reached a historic high intraday, with a market value increasing by about $200 billion by the closing, setting a record for the strongest single-day market value growth in the history of the U.S. stock market.

Subsequently, Meta Platforms released an excellent fourth-quarter earnings report and announced the distribution of quarterly dividends for the first time, fueling continued market enthusiasm. Currently, the company's stock price is around $490, up nearly 30% from the end of January.

However, behind the joy of entering the "trillion-dollar club," the momentum of Meta Platforms is still facing some unfavorable factors. In the fourth quarter, Morgan Stanley reduced its holdings of META stocks, with its ownership ratio decreasing from 1.13% to 1.11%; Meta Platforms also faced a large number of complaints in Europe, with 8 consumer organizations accusing Meta Platforms of unfairly offering users a paid ad-free version. After the enthusiasm brought by the earnings report cools down, these negative events may cause a certain degree of pullback in the company's stock price.

Significant Cost Reductions Result in a 69% Increase in Net Profit for the Year

According to the company's recent financial report, in the fourth quarter of the 2023 fiscal year ending on December 31, 2023, it achieved a revenue of $40.111 billion, a 25% increase from the same period last year, higher than the market's expected $38.9 billion, also the largest revenue increase for Meta Platforms since the third quarter of 2021; net profit increased by 201% year-on-year to $14.017 billion, higher than the market's expected $12.89 billion; diluted earnings per share increased by 203% year-on-year to $5.33, higher than the market's expected $4.95.

Thus, Meta Platforms' revenue for the full year of 2023 reached $134.902 billion, a 16% year-on-year increase; net profit achieved a remarkable increase, rising by 69% year-on-year to $39.098 billion. Meta Platforms announced a $50 billion stock buyback due to its impressive performance. The company will distribute dividends for the first time in its history in March this year, including both Class A and Class B common stocks, with a cash dividend of $0.50 per share.

In terms of business segments, Meta Platforms' fourth-quarter revenue was mainly contributed by advertising revenue from social media platforms, totaling $38.706 billion, accounting for over 96% of total revenue. Relying on advertising revenue, the Meta Platforms' Family of Apps (FoA), including Instagram, Facebook, and WhatsApp, achieved a fourth-quarter revenue of $39.04 billion, a 24% year-on-year increase.

Facebook's daily active users (DAU) reached 2.1 billion in December last year, with monthly active users reaching 3.07 billion, both exceeding research institutions' expectations.

It is worth noting that since 2023, Meta Platforms has adopted a "price reduction and volume increase" strategy. The average advertising price for the full year of 2023 decreased by 9% year-on-year, while the advertising volume increased by 28% year-on-year. During the earnings conference call, the company's management also mentioned that in 2023, revenue from Chinese advertisers accounted for 10% of Meta Platforms' total revenue, contributing 5 percentage points to global revenue growth.

In other business areas, the metaverse-related department and Reality Labs, responsible for AR and VR business, are still in the stage of "losing money to gain popularity." The fourth-quarter loss amounted to $4.646 billion, higher than the $4.279 billion in the same period last year. For the full year of 2023, the total loss of this department reached $16.12 billion, an increase from $13.717 billion in the previous year. From the perspective of reduced cost pressure for the whole year, the cost-saving strategy implemented at the beginning of 2023 has evidently achieved certain effectiveness, balancing the substantial expenses on technologies like AI and VR while still maintaining performance growth. According to Zhitong App, as of December 31, 2023, Meta Platforms has completed its data center plan, layoff plan, and facility integration plan. In Q4, total costs and expenses decreased by 8% YoY to $23.7 billion, with the operating profit margin increasing from 25% in the previous year to 35% for the full year of 2023.

In response to this, Mark Zuckerberg, the CEO of Meta Platforms, stated, "With the continuous growth of our community and business, we have had a good quarter. We have made significant progress in advancing the vision of AI (Artificial Intelligence) and the metaverse."

Looking ahead, Meta Platforms expects that in the next fiscal quarter, the company's revenue will reach between $34.5 billion and $37 billion, higher than analysts' expectations of $33.64 billion, but has not provided full-year performance guidance.

In the ongoing AI frenzy in the tech industry, the company will continue to increase investments. It is projected that the company's capital expenditures for the full year of 2024 will be between $30 billion and $37 billion, an increase from the guidance of $30 billion to $35 billion given three months ago. Meta Platforms revealed that it is accelerating the construction of new data center architecture sites and deploying new in-house custom chips in the data centers.

The turning point for the metaverse has not arrived, and losses are expected to continue

Despite the booming advertising business, the indefinite commercial prospects of the metaverse have made Meta Platforms' massive investments in the metaverse a common concern for investors.

According to Zhitong App, the metaverse is a new type of internet application and social form that integrates various new technologies, based on augmented reality technology to provide immersive experiences, generating a mirror image of the real world through digital twin technology, and building an economic system through blockchain technology, closely integrating the virtual world with the real world in various aspects.

Since 2021, the "first year of the metaverse development," although the prospects of the metaverse concept are broad and highly acclaimed, due to the immaturity of various technologies, content, and ecosystems, it still remains in its infancy, and even the more advanced AR/VR field has yet to establish a mature commercial ecosystem. Due to the turbulence in the global economic situation, despite the highly anticipated new products launched by Sony and Meta Platforms this year, the growth rate of the global AR/VR headset market has slowed down. According to the International Data Corporation (IDC) forecast, the total shipments of augmented reality (AR) and virtual reality (VR) headsets worldwide are expected to reach 8.1 million units in 2023, still not reaching the tens of millions level, with a decrease of about 8.3% compared to the same period last year.

IDC pointed out that by the end of 2023, Meta Platforms has firmly secured the top spot in the global AR/VR device market, with a market share as high as 55.2%. In that year, the company released the Meta Platforms Quest 3, starting at $499.99 for the 128GB version. Its most significant upgrade is the full-color perspective, with the pixel density of the color perspective ten times higher than its predecessor, and the device is also much lighter and thinner overall.

In 2024, Meta Platforms is expected to publicly showcase the company's first true AR glasses prototype, Orion, and will launch the first AR glasses for public sale, Artemis, in 2027. The company clearly has high hopes for Orion, claiming that the product uses "military-grade" special silicon carbide, a price that ordinary consumers cannot afford, and cannot be mass-produced in the short term. If the product exceeds expectations after its release, it may bring some excitement to the VR/AR industry.

At the same time, Meta Platforms also admitted that despite continuing to invest heavily in the future, it is not expected that the RealityLab (RL) business will turn a profit in the short term.

Heavy Investment in AI Large Models, Uncertainties Remain?

Compared to the "calm" XR industry, Meta Platforms' progress in the AI business may be more helpful in boosting its market valuation.

In 2023, Meta Platforms successively launched the large language model LLaMa, various AI applications, and Meta Platforms AI assistants, and has now introduced more than 20 AI tools in its apps. In 2024, the company also plans to launch the large model LLaMa3, expand the practicality of Meta Platforms Platforms Platforms Platforms Platforms AI assistant, and advance the AI Studio roadmap.

According to Zhitong App, Meta Platforms Platforms Platforms Platforms Platforms' long-term strategic goal is to build open-source general AI models. The company plans to use around 350,000 H100 GPUs from NVIDIA to increase computing power. By then, Meta Platforms Platforms Platforms Platforms Platforms will have nearly the computing power provided by 600,000 H100 GPUs.

With the massive data and content provided by its social platforms, Meta Platforms Platforms Platforms Platforms Platforms has a unique advantage in AI large model training. However, whether such a heavy investment can truly translate into a competitive advantage remains to be seen. Based on this plan, the company's expenditure on chip purchases alone could reach approximately $8.75 billion. If the company fails to find a balance between investment and output, such a bold move may ultimately end in failure and significantly drag down the company's performance.

Furthermore, the controversy surrounding social media data security has always cast a shadow over Meta Platforms Platforms Platforms Platforms Platforms' prospects. In November 2023, Meta Platforms Platforms Platforms Platforms Platforms was sued by an alliance of attorneys general from 41 states and the District of Columbia in the United States. The lawsuit accused the company's platforms, including Facebook, of illegally collecting personal account information and data from users under the age of 13 and embedding addictive features that harm children's mental health. If the lawsuit results unfavorably, the company may face fines of up to hundreds of millions of dollars.

Looking ahead, the company's core advertising business is expected to maintain rapid growth, while upcoming AI products and XR products such as Quest headsets will be the market's focus. Additionally, risks such as policy regulation on data security and AI, as well as lower-than-expected shipments of XR products, cannot be ignored.