In this market, the last thing investors are rewarding this earnings season is a miss against expectations of any magnitude.
Unless you’re META.
Shares of the social media giant exploded nearly 20% in premarket trading Thursday after missing earnings. The company had the most visited ticker page on Yahoo Finance.
Here’s how Meta performed against Wall Street estimates – at first glance, it was far from rosy and deserved a big boost in the company’s market price.
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Q4 Income – Actual $32.17 billion vs $31.65 billion expected
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Advertising Revenue – Actual $31.25 billion vs $30.86 billion expected
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Adjusted earnings per share (EPS) – Actual $1.76 vs $2.26 expected
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Facebook Daily Active Users (DAUs) – 2 billion actual versus 1.98 billion expected
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Family of Apps Daily Active Users (DAU) – 2.96 billion actual vs. 2.92 billion expected
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Reality Labs operating loss – -Actual $4.28 billion vs. $3.99 billion
Investors have long loved Meta for its ability to print money, but are unhappy with the name amid slowing sales and new restructuring efforts in 2022. But they may now be willing to overlook quarterly shortfalls (see revenue weakness and Reality Labs losses) in light of better earnings signs ahead.
This better earnings trajectory could come from two areas, both of which Meta executives called their earnings late Wednesday (shocker!).
The first is a new appreciation for managing a business with productivity in mind.
Meta laid off 11,000 workers (13% of its workforce) last November amid pressure from major investors to boost margins. Some of these cuts go as deep as canned cafeteria workers (see tweet below). CEO Mark Zuckerberg says the company is just beginning its cost-cutting journey, which makes Meta bulls happy.
“We closed last year with some tough layoffs and restructuring some teams, and when we did that, I made it clear that this is the beginning, not the end, of our focus on efficiency,” Zuckerberg told analysts on the call.
Zuckerberg added that “efficiency” is one of his key themes for 2023, along with harnessing the new artificial intelligence movement. When did he choose efficiency over innovation? Never and the Street likes it.
The company then began cutting costs and capital expenditures by $5 billion and $4 billion, respectively, for the year.
Zuckerberg’s change in tone has not gone unnoticed on Wall Street, which has long been eager to reconnect with the stock market.
“While a cut in cost guidance was expected, the magnitude of the change was a positive surprise,” Jefferies analyst and Meta bull Brent Thill said in a client note.
While Meta’s profits will get a jolt from cost-cutting, the company’s share buyback could be another boost from material growth. Stock buybacks tend to reduce shares outstanding, helping to increase earnings per share.
Meta has issued a new share repurchase authorization of $40 billion, giving it a total capacity of $50 billion.
“A $40 billion increase in share repurchase authorization provides additional EPS support,” Thill said.
We don’t suggest other companies go the Meta route and miss out on earnings estimates. But if you can come to the table with success in cutting costs now and promises of more – and have money to throw at buybacks – then a Meta-like reaction in the market can happen even if profits come. in the light.
Again, this game is not for everyone.
Yahoo Finance Alexandra Garfinkle contributed to this story.
Brian Sozzi is a senior editor and Host at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and continues LinkedIn.
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