Shares of Meta Platforms (NASDAQ: META), or Meta, soared by more than 23% to almost US$189 after the release of its latest earnings on Thursday.
While shares are nowhere near their all-time highs in September 2021, the stock price has more than doubled from its low of US$88 in November 2022.
We have identified three reasons why.
1. Meta recorded a year on year increase in active users data
Facebook, one of Meta’s core products, recorded daily active users (DAUs) of two billion for December 2022, an increase of 4% year on year.
The social network recorded monthly active users (MAUs) of 2.96 billion for the fourth quarter of 2022 (4Q’22), an increase of 2% year on year. The MAUs was also higher than in each of the first three quarters of 2022.
Meanwhile, Meta’s Family of apps, which consists of Facebook, Instagram, Messenger and WhatsApp, recorded daily active people (DAP) of 2.96 billion for 4Q’22, an increase of 5% compared to a year ago.
Over the same period, Family monthly active people (MAP) rose to 3.74 billion for 4Q’22, an increase of 4% year on year.
For context, DAP and MAP refers to a registered and logged-in user who visited at least one of the family of apps on a given day.
User engagement has also improved with Reels plays (short-form videos) across Facebook and Instagram more than doubling in 2022.
Resharing of Reels has grown even faster, more than doubling on both apps in just the last six months.
On this point, CEO Mark Zuckerberg said that Reels has reached a stage where the focus should be on monetisation efficiency.
He added that it is clear there would not be much strategic advantage in holding off its monetisation efforts to scale Reels further.
2. Meta recorded a year on year increase in revenue (on a constant currency basis)
Meta recorded revenues of US$32.2 billion and US$116.6 billion, a decrease of 4% and 1% year on year for 4Q’22 and 2022, respectively.
However, had foreign exchange rates remained constant, the tech giant’s revenue would have been US$2.01 billion and US$5.96 billion higher, representing an increase of 2% and 4% year on year for 4Q’22 and 2022, respectively.
For 4Q’22, growth was driven by higher ad impressions which increased 23% year on year offsetting the average price per ad decrease of 22% year on year..
For the full year, ad impressions increased 18% year on year while the average price per ad decreased 16% year on year.
An ad impression is counted whenever an ad is displayed within an app.
As such, an increase in ad impressions that is higher than the rate of increase in its active user base is likely due to Meta pushing more ads to users or a request by advertisers to increase ad views or both.
On the flip side, the decrease in the average price per ad suggests that there is market pricing in play based on the effectiveness of Meta’s ads..
Looking ahead, Meta sees business messaging as the third pillar of its business after Facebook and Instagram.
For instance, click-to-message ads are already at a US$10 billion run-rate.
Next, Meta provided its revenue outlook for 1Q’23, guiding towards a range of US$26 billion to US$28.5 billion. For comparison, Meta recorded revenues of US$27.9 billion in 1Q’22.
The guidance assumes foreign currency will cause a two percentage point headwind on its topline growth..
3. Meta increased its share repurchase program
Meta repurchased US$6.91 billion and US$27.9 billion of its own stock in 4Q’22 and 2022, respectively, leaving US$10.9 billion available for future repurchases.
In addition, the social network company announced a US$40 billion increase in its share repurchase authorization, bringing the total amount available to around US$50.9 billion.
At its current market capitalization of approximately US$495 billion, the share repurchase program amounts to more than 10% of current market capitalization, a sizable amount.
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Based on the latest announcements, it seems like Meta has turned the corner.
The strong stock price performance could thus be justified based on the trends we see above, including the increase in active users across Meta’s family of apps, revenue performance as well as a large share repurchase program.
Of course, this is just one quarter of results. We will have to see what the next quarter brings.
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Disclosure: Alex Yeo does not own shares in Meta Platforms.