Meta shares jump despite metaverse division losing $13.7B in 2022

Shares of Meta Platform Inc. jumped by almost 20 percent in the after-hours trading session on Wednesday after CEO Mark Zuckerberg pledged to turn 2023 into the "year of efficiency."

Meta published its earnings report for the Q4 of 2022 on Wednesday, posting its third consecutive decline in revenue and a steep drop in profit. The tech company had to deal with macroeconomic uncertainty, heightened competition and costs related to its recent layoffs.

The big tech company posted $32.2 billion in revenue last quarter, down four percent from the year before. The net income for that quarter was $4.7 billion, falling by 55 percent from the same period in 2021.

The company's metaverse division, Reality Labs, was responsible for a $13.7 billion loss last year. Its revenue fell by 17 percent to $727 million in the fourth quarter due to the declining sales of its Quest 2 headset.

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Despite the slump, Meta exceeded Wall Street's earlier projections of $31.5 billion in revenue. The net profit, however, was still below the expected rate.

Over the past years, Meta invested heavily in innovative sectors with unproven prospects, such as virtual reality. Its change of direction followed a "brutal" year in which the company lost more than $600 billion in valuation.

In his statement, Zuckerberg explained how within the first 18 years of the company's history, its revenue had posted a sharp increase every year. The year 2022 was the first time the company yielded negative growth.

Zuckerberg asserted that Meta did not expect continued declines in the future. However, he said the company would likely not return to its "hyper-growth" phase and need to change its strategy.

"Our management theme for 2023 is the 'Year of Efficiency' and we're focused on becoming a stronger and more nimble organization," Zuckerberg wrote in a statement.

"We’re working on flattening our org structure and removing some layers of middle management to make decisions faster, as well as deploying AI tools to help our engineers be more productive. There’s going to be some more that we can do to improve our productivity, speed and cost structure."

Mark Zuckerberg, CEO of Meta

Wednesday's report also revealed growth in user counts, which was a concern for the company last year. Facebook currently has two billion daily active users. Overall, Meta's daily active users for all of its apps grew by five percent to 2.96 billion last year.

Meta's core advertising business dropped slightly over four percent, posting $31.3 billion. In the Q4 of 2022, Meta's average price per ad saw an annual decline of 22 percent. The average price per ad decline throughout 2022 was 16 percent. However, this result beat earlier expectations. senior analyst Jesse Cohen said the result of Meta's advertising division should "refute concerns over the state of the digital advertising industry." According to Meta CFO Susan Li, the company's ad revenue growth improved slightly despite remaining negative in the fourth quarter.

Meta's ad division serves advertising verticals, consumer packaged goods and online commerce. Its current competitors in the digital advertising sphere are Apple's app tracking changes and other social media platforms like TikTok.

Meta's plan for 2023

Per Meta's earnings report, the company has cut its 2023 capital expenditures to $30-$33 billion, and It plans to lower spending on data center construction.

Meta will also devote a significant portion of its capital expenditures to developing its Family of Apps — the company's specific term for Facebook, WhatsApp and Instagram.

Analysts said this pledge was likely an attempt to reassure skeptical investors who grew worried about Meta's plan to center its business model around the metaverse.

For the Q1 of 2023, Meta forecasts revenue from $26 billion to $28.5 billion. The cap, if achieved, will represent a year-over-year increase and break Meta's streak of quarterly revenue falls.

Meta's revenue guidance is higher than Snap, the parent company of social media Snapchat. Snap projects that its revenue in the first quarter will see an annual decline of two to ten percent.