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2 Reasons Meta Stock Explodes 20% After Massive Earnings Missing


In this market, the last thing investors are rewarded for this earnings season is a missed profit margin of any degree.

Except if you are Meta (META).

Shares of the social media giant exploded more than 20% in midday trading on Thursday following a huge earnings shortfall. The company has most visited bookmarks on Yahoo Finance.

This is How Meta Works against Wall Street estimates – it wasn’t rosy at first and deserves a big boost in terms of the company’s market capitalization.

  • Q4 revenue – $32.17 billion actual vs $31.65 billion expected

  • Advertising revenue – $31.25 billion actual vs $30.86 billion expected

  • Adjusted earnings per share (EPS) – $1.76 actual vs $2.26 expected

  • Facebook Daily Active Users (DAU) – 2 billion actual vs 1.98 billion expected

  • Application Pools Daily Active Users (DAUs) – 2.96 billion actual vs 2.92 billion expected

  • Actual Laboratory Operational Loss – -4.28 billion dollars actual vs -3.99 billion dollars expected

Investors have long loved Meta for its ability to print money, but will dislike the name in 2022 amid slowing sales and new restructuring efforts. But they may be willing to ignore quarterly deficits for now (see weak sales and growing Real Labs losses) when there are signs of better profitability in the future.

That better profit trajectory could come from two areas, both of which were shown by Meta executives during their earnings call late Wednesday (shocking!).

The first is a new appreciation for running a productivity-focused business.

Meta laid off 11,000 employees (13% of the workforce) last November amid pressure from major investors to boost profit margins. Some of those cuts are as deep as canning workers in a cafeteria (see tweet below). CEO Mark Zuckerberg said the company was just getting started on its cost-cutting journey, much to the delight of Meta’s bulls.

“We ended last year with some tough layoffs and restructuring some teams, and when we did this, I made it clear that this is the point,” Zuckerberg told analysts on the call. the beginning of our focus on performance, not the end.”

Zuckerberg added that “efficiency” is one of his main themes for 2023 alongside capitalizing on the new AI movement. Has he ever put efficiency before innovation? Never, and the Street loves it.

The company then cut costs and guided investments for the year by $5 billion and $4 billion, respectively.

The change in tone from Zuckerberg hasn’t gone unnoticed on Wall Street, which is eager to re-engage with stocks from a long-term perspective.

“While a reduction in instruction costs was expected, the magnitude of the change was a positive surprise,” said Jefferies and Meta bull analyst. Brent Thill wrote in a customer note.

Meta Platforms CEO Mark Zuckerberg leaves federal court after attending a defense session by parent company Facebook over its acquisition of virtual reality app developer Inside Inc., in San Jose, California, U.S. today December 20, 2022. REUTERS/Laure Andrillon

Meta Platforms CEO Mark Zuckerberg leaves federal court after attending parent company Facebook’s defense of its acquisition of virtual reality app developer Inside Inc., in San Jose, California, U.S. today December 20, 2022. REUTERS/Laure Andrillon

While Meta’s profits skyrocketed thanks to cost-cutting, there could be another boost coming from increasing raw materials to buy back the company’s stock. Share buybacks tend to reduce the number of shares outstanding, which increases earnings per share.

Meta has revealed a new $40 billion share buyback authorization, giving it a total capacity of $50 billion.

“The $40 billion increase in share repurchase authorization will further support EPS,” Thill said.

We don’t recommend other companies follow Meta’s path and miss earnings estimates. But if you can sit at the table right now with success in cutting costs and promise more — and cash to buy back — then a Meta-like reaction in the market could ensue. even if the profit comes in the light.

Again, this game is not for everyone.

Yahoo Finance Alexandra Garfinkle contributed to this story.

Brian Sozzi is an editor-in-chief and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and more LinkedIn.

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