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Meta, formerly known as Facebook, released underwhelming numbers on Wednesday night. The street took a dim view of the results because profit missed estimates and there was weak forward growth guidance. Not a great combination.
Here are the details. For the fourth quarter, Meta managed to grow revenue by 20% to $33.7 billion, but profits dropped 8% to $10.3 billion. The reason for the divergence between top- and bottom-line growth is because Meta is spending a huge amount of money on development. Over the last year, their spending on new platforms has increased by 35% to $7 billion a quarter.
CEO Mark Zuckerberg is committing 20% of revenue on new projects because the company has reached an inflection point. Facebook, the anchor app, lost daily active users (DAU) for the first time in the company's history.
Across the whole group, DAU still grew 8% to 2.8 billion people, and monthly active users grew 9% to 3.6 billion people. Instagram and WhatsApp are still going strong. Of course, it's tough to keep growing user numbers off of such a large base. Another headwind is increased competition from TikTok. Meta also noted that the changes in Apple's iPhone privacy settings cost it around $10 billion for the year in lost sales. Ouch!
Where to from here? As it stands, the stock is being priced as a company that has peaked and has no growth to offer. I think that is crazy. They might struggle to grow user numbers, but there is still massive upside as more advertisers move online. For instance, Meta makes three times more per US user, than they do in Europe and 12 times more than Asia-Pacific. I would expect to see those gaps narrowing.
The current business generates mountains of cash, and that won't change anytime soon. Buying Meta now is also a bet on the metaverse, whatever that may look like. I can't see myself spending my days living in virtual reality, but what do I know, I didn't think an app showing people what I ate for supper was going to take off. Meta's management team are convinced that the next phase of the internet is the metaverse. If that's the case, the stock is very cheap at the moment.