Meta Plans $50 Billion Buyback in Bid to Win Over Investors

(Bloomberg) -- Meta Platforms Inc. announced plans to buy back an additional $50 billion in shares and issue its first-ever quarterly dividend as Chief Executive Officer Mark Zuckerberg works to convince investors that his costly bets on the metaverse and artificial intelligence will pay off.

The social media giant also reported strong fourth-quarter results, posting a 25% gain in sales and profits that tripled, while also projecting revenue growth for the current period that surpassed projections.

The shares jumped more than 14% in extended trading. The stock had gained 12% this year through Thursday’s close after nearly tripling last year.

“We had a good quarter as our community and business continue to grow,” Zuckerberg said in a statement. “We’ve made a lot of progress on our vision for advancing AI and the metaverse.”

Revenue is expected to be as much as $37 billion in the three months ending in March, Meta said. Analysts were looking for $33.6 billion, according to estimates compiled by Bloomberg. In the fourth quarter, revenue was $40.1 billion, beating the average analyst estimate of $39 billion. Net income surged to $14 billion, or $5.33 a share, also better than expected.

Meta executives had cautioned in October that “global economic uncertainties” could weigh on revenue at the end of last year, typically the most lucrative quarter, even as the company laid out an expensive spending plan for 2024. But the social media company, which owns Facebook, Instagram and WhatsApp, fared better than Alphabet Inc. The Google parent, which, like Meta, gets the bulk of its revenue from digital advertising and is also investing heavily on AI, reported softness in its core search advertising business earlier this week, sending its stock tumbling.

“In the digital advertising sphere, Meta’s outlook is increasingly optimistic,” said Mayuranki De, research analyst at Global X. “Despite diversifying into areas like virtual-reality headsets, digital advertising remains its revenue cornerstone.”

Chief Financial Officer Susan Li said the strong increase in revenue in the fourth quarter was due to high spending by China-based advertisers and AI-recommended video content. Daily watch time across the company’s apps increased 25% from a year earlier. 

In 2023, revenue from China-based advertisers represented 10% of Meta’s total revenue and contributed 5 percentage points to total worldwide revenue growth, Li said on a call with analysts.

In recent years, Meta has been working to balance huge outlays on technologies like artificial intelligence and virtual reality, while still trying to ensure that its core digital advertising business is still growing. After seeing business shrink for the first time in 2022, Zuckerberg made efforts to turn the company around, dubbing 2023 the “year of efficiency” and cutting thousands of jobs.  

“The fruits of their cost cutting measures are starting really to shine through earnings,” analysts at Vital Knowledge wrote in a note.

Zuckerberg struggled to get investors on board the last time he laid out a long-term, expensive new vision — for the metaverse — going so far as to change the company’s name from Facebook to Meta. Now, as the company spends handily on VR and AI, the company is sweetening the bet for shareholders with a quarterly dividend of 50 cents a share and a huge share repurchase program. The last time Meta authorized a buyback of this size was in October 2021 when it was still posting surprising growth in the number of people actively using its network of social media apps.

Now that Meta plans to pay a dividend, the only holdouts among peers valued at more than $1 trillion are Amazon.com Inc. and Alphabet Inc. Apple Inc. has paid dividends on and off since 1987, and Microsoft Corp. started doling out dividends in 2003.

Meta’s move sends a signal about the company’s view of its potential. While it indicates management are bullish about growth prospects, it also hints at limits on what the company can do with its cash pile. Typically, faster growing tech companies eschew dividends in favor of using earnings to develop new products or make big acquisitions. While Meta is spending big on artificial intelligence initiatives, its acquisition prospects are dwindling in the face of regulatory opposition.

Meta has been investing in AI technology at record levels, including expanding its core advertising business through improvements in ad targeting and AI-recommended content, and the infrastructure it needs to run it. At the same time, it hasn’t abandoned efforts to build the virtual reality metaverse. 

For this year, Meta plans to spend $94 billion to $99 billion, covering higher infrastructure-related costs, hiring selectively in higher-cost technical roles and development in augmented and virtual reality. Last quarter, the company said it planned to push some spending on items like new headcount and infrastructure into 2024.

Zuckerberg said he’s developed an appreciation for operating a leaner company, and is reluctant to jump back into significant hiring. He said he’d like to keep new hires “relatively minimal” to stay lean.

The company also said it expects operating losses to “increase meaningfully” at Reality Labs, the division that makes smart glasses and headsets, as it continues to invest in product development. On the bright side, the unit crossed $1 billion in quarterly revenue for the first time. 

Meta’s results follow reports from other Big Tech rivals, including Microsoft Corp., which failed to convince Wall Street that the all-consuming and expensive focus on AI is starting to pay off yet.

Meta’s approach to the AI race has been different than its peers, however. For the most part, it’s unveiling research or large language models — the technology that underpins AI chatbots — for free to be used by developers. Meta thinks this open strategy will help improve the technology faster.

For all of Meta’s excitement about AI, investors focus on the number of people who use its apps has faded. Now with almost 4 billion people across Instagram, Facebook and WhatsApp that use the platform each month, the San Francisco-based company said it will no longer report that metric in earnings, or daily and monthly user numbers for its flagship Facebook app.

Beginning this quarter, the company will instead begin reporting year-over-year changes in ad impressions and the average price per ad at the regional level, while continuing to report only daily active users across its family of apps.

Reels – the vertical videos on Instagram and Facebook that are served up to users by an algorithm – are being re-shared 3.5 billion times a day, Zuckerberg said, and ads for that format are now contributing to net revenue across both apps. Continuing to improve those videos, the ads served there and the algorithm that personalizes them for users, will continue to “remain a priority,” he said

--With assistance from Kurt Wagner.

(Updates to add user numbers, comments from CFO, CEO)

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