Mark Zuckerberg, chief executive of Meta Platforms Inc., center, leaves federal court in San Jose, California, Dec. 20, 2022.
David Paul Morris Bloomberg | Get Image
With one simple slogan, Meta CEO Mark Zuckerberg temporarily quelled investor discontent with his company’s multibillion-dollar investment in the futuristic metaverse.
“Our management theme for 2023 is ‘The Year of Efficiency’ and we are focused on becoming a stronger and more agile organization,” Zuckerberg said in the release of Meta’s fourth quarter report.
After a 64% plunge in Meta’s share price in 2022, Wall Street cheered the report, sending the stock up nearly 20%, extending a rally that started late last year. Based on after-hours prices, Meta is trading at its highest since July.
Growth is not what is getting investors excited. Meta reported better-than-expected revenue in the fourth quarter, but sales were still down 4% from a year earlier, marking its third quarterly decline. And the set of forecasts for the first quarter suggests that revenue year-on-year may increase, but it could also fall again.
Instead, Zuckerberg’s commitment to cost reduction and efficiency is a sign that increased profitability is important for Meta, which was known as a growth engine before last year’s downturn.
“The first 18 years I think we grew it 20%, 30% compounded or much more every year,” Zuckerberg said on the earnings call. “And then obviously that changed very dramatically in 2022, where our revenue was negative for growth, for the first time in the company’s history.”
In looking to the future, Zuckerberg struck a realistic tone.
“We don’t anticipate that this will continue,” he said, regarding the recent drop in revenue. “But I also don’t think it will go back to the way it was before.”
Meta lowered its estimates for total spending in 2023 to a range of $89 billion to $95 billion, down from its previous outlook of $94 billion to $100 billion. In November, the company announced that it would lay off more than 11,000 workers, or 13% of its workforce.
Zuckerberg said that Meta will be more “active in cutting projects that are not done or are no longer important” and that it will emphasize “removing layers of middle management to make decisions faster.”
Meta is also cutting costs as it builds new data centers that are intended to be more efficient while still being able to run on the company’s various artificial intelligence technologies. Capital expenditures are now projected in the $30 billion to $33 billion range for 2023 instead of $34 billion to $37 billion.
Zuckerberg is selling investors on a story they want to hear, acknowledging that the company is bloated and needs more financial discipline. One of Zuckerberg’s top deputies, chief technology officer Andrew “Boz” Bosworth, wrote a personal essay just days ago echoing that sentiment.
Still, Meta has many challenges ahead, in terms of both spending and reviving its core ad business.
Meta’s Reality Labs unit, responsible for developing the fledgling metaverse, lost $13.7 billion in 2022. Chief financial officer Susan Li told analysts that the company is not planning any cuts to that unit anytime soon. Zuckerberg still sees it as the future of the company.
Digital advertising, meanwhile, is suffering from a struggling economy, and it gives no indication that companies are planning to increase spending dramatically in 2023.
Meta hasn’t recovered either The Apple iOS 2021 privacy update that made it harder to target users with ads. He said the company has improved its online advertising system, but the Apple update is “still certainly an absolute windfall for our revenue numbers.”
During the question and answer portion of the call, Zuckerberg asked about Meta’s progress in generative artificial intelligence, which has become the latest hot thing in Silicon Valley. His response indicates that Meta is pursuing the opportunity, but will be cautious in how quickly he proceeds. Running these programs is expensive, and Meta needs to make sure it can develop them affordably, he said.
Zuckerberg said that while Meta is researching how best to incorporate the new technology, he wants to “be careful not to get too far ahead of the development of it.”
Correction: Meta’s earnings report and CEO Mark Zuckerberg’s comments were made after the market closed on Wednesday. An earlier version gave an error of the day.
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