Meta shares rose on Thursday after the company reported better-than-expected earnings, said it would buy back billions of dollars worth of its shares and overcame a court challenge to its so-called metaverse ambitions.
Shares of the tech giant, which owns Facebook, Instagram and WhatsApp, rose more than 24 percent, which would be its biggest one-day gain in nearly 10 years. And it’s a huge move for a company of its size, adding about $100 billion in market value in a single day, or nearly as much as Citigroup’s total market capitalization.
What is the metaverse and why is it important?
The origins. The word “metaverse” describes a fully realized digital world that exists beyond the one in which we live. It was coined by Neal Stephenson in his 1992 novel “Snow Crash,” and Ernest Cline further explored the concept in his novel “Ready Player One.”
The future. Many people in technology believe that the metaverse will herald an era in which our virtual lives will play as important a role as our physical realities. Some experts warn that it could still become a fad or even a dangerous one.
After ending last year with a loss of more than 60 percent, Meta shares are up more than 50 percent this year as the mood among technology investors has improved. The Nasdaq Composite, an index that includes many technology companies including Meta, is up nearly 20 percent this year.
Here’s the latest on Meta:
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The company’s earnings beat expectations and it announced a large buyback plan. Its revenue in the final three months of last year, just over $32 billion, fell 4 percent from a year earlier but beat analysts’ forecasts. On Wednesday, the company also said first-quarter sales would be better than expected and announced $40 billion in share buybacks, after buying $28 billion of its own shares last year.
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Flat, and even slightly down, is the new top. Despite the drop in revenue, Meta’s core products like Facebook and Instagram continue to post strong sales amid a tough economic climate. That boosted Wall Street sentiment on the deal and removed some of the more pressing concerns that Meta is in imminent danger from rivals like Apple, TikTok or other social media companies, at least for now.
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Meta executives can cut costs when necessary. For years, Meta spent lavishly on breakneck expansion, whether in the form of new offices, increased headcount or forward-looking technology with no immediate plans to make money. But in its last quarter, the company showed that it could find areas to cut when pushed to do so. Mark Zuckerberg, chief executive of Meta, called 2023 “the year of efficiency” in an earnings call Wednesday, including ending a series of office leases, redesigning data centers to cost less and dismissal of thousands of what he described as “managing managers”. Wall Street welcomed the moves.
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Meta can still bring new people to Facebook. Facebook’s big blue app surpassed two billion daily active users for the first time last quarter, a huge and impressive milestone given the already large size of the service. It’s a sign that while competition from other social networks is tough, people are still using Facebook.
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Their virtual reality deal survived a legal challenge. A federal judge on Wednesday denied the Federal Trade Commission’s request to stop Meta from spending $400 billion to acquire a virtual reality startup called Within, a major legal victory for the company as it invests heavily in the metaverse, where users work. reproduce and consume content through virtual and augmented reality. (Less happy for Meta, a month ago, European regulators ruled that it had illegally forced users to accept personalized ads, fining the company more than $400 million and potentially forcing it to make costly changes to its advertising business in the Union. European).
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Many challenges remain. Meta is facing setbacks in digital advertising as clients rein in spending due to higher interest rates and inflation. The company is also struggling to retain users drawn to newer apps like TikTok, the short-form video app Zuckerberg sees as one of his most formidable rivals. The billions Meta is spending pursuing its founder’s metaverse vision may not be worth it.
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Meta laid off more than 11,000 employees in November. The company reduced its workforce by 13 percent in the round of layoffs, marking the most significant job cuts since its founding in 2004. Meta took a $4.2 billion restructuring charge for the fourth quarter, including costs for the early termination of the position. leases and compensation for employees. The company expects another $1 billion in restructuring costs in 2023.
