Meta shares are up 170% in five months despite virtually no revenue growth
Andrew Ross Sorkin speaks with Meta CEO and founder Mark Zuckerberg during the New York Times DealBook Summit in the Appel Room at the Jazz At Lincoln Center on November 30, 2022 in New York City.
Michael M. Santiago | Getty Images
Meta is no longer the runaway growth story it was in the past, but you wouldn’t know that based on the stock chart in recent months.
On Wednesday, Facebook’s parent reported meager revenue growth of 3% from a year earlier, which was better than analysts were expecting. Before that, Meta had reported three straight quarters of sales declines, underscoring the social media company’s challenges coping with a slowdown in digital ads.
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However, following a 15% rally on Thursday to over $241, Meta’s shares are up 170% since bottoming at under $89 in November.
For the most part, investors have been jumping on Meta’s cost-cutting story and two rounds of job reductions, which began in November and are continuing in the first half 2023. In February, CEO Mark Zuckerberg said this would be the company’s “year of efficiency,” a declaration that sent the stock up over 20%.
Even with the hot start to the year, Meta shares are still about 37% below their record high from September 2021. They lost two-thirds of their value last year, as the company reckoned with by far its toughest stretch since its IPO a decade earlier.
Now, Wall Street’s betting that Meta can slowly start to revive growth, with comparisons becoming easier after a weak year in 2022 and newer products beginning to show better traction.
The company continues pushing its TikTok-like Reels short-form video service, and finance chief Susan Li told analysts on Wednesday’s earnings call that the offering is “on track to becoming neutral to revenue by end of year, early next year.”
Reels currently monetizes at a slower pace than older and more established products like the news feed and Stories. Meta is figuring out how to better generate revenue from Reels and, at the same time, could be benefiting as TikTok, which is owned by the Chinese company ByteDance, faces heavy scrutiny from U.S. lawmakers, with many of them trying to ban the app.
Analysts at Mizuho Securities pointed to improved ad pricing as a significant catalyst for Meta, driven by Reels and messaging.
“With better monetization, additional room for cost efficiency, and increased scrutiny of TikTok, we continue to like the setup for FY23,” wrote the analysts, who recommend buying the stock.
Piper Sandler analysts, who also have a buy rating on the stock, said Meta is in a favorable revenue position for the rest of the year. They noted that “user growth remains strong” and said the business can keep expanding even with lower headcount.
“Meta successfully ‘passed the baton’ from cost cuts to revenue re-acceleration,” the analysts wrote.
As for Meta’s pivot to the nascent virtual world of the metaverse, the project continues to bleed cash. The Reality Labs division, responsible for developing software and hardware for the metaverse, lost $3.99 billion in the first quarter after losing $13.72 billion in 2022.
But there’s enthusiasm brewing for another growth market: artificial intelligence. Zuckerberg repeatedly emphasized his company’s investments in generative AI, which has been popularized by the text-generating ChatGPT tool developed by Microsoft-backed OpenAI.
Bank of America analysts said in a report that the buildout of an AI ecosystem could bolster Meta’s stock multiple.
“From a business perspective Meta outlined opportunities for AI enabled ad content creation and automated customer service using Meta’s messaging platforms,” wrote the analysts, who have a buy rating on the stock. “Multi-year AI driven platform retention could help multiple expansion, as terminal value uncertainty has weighed on valuation.”
Watch: Meta’s earnings reflect one of the best turnaround of all time.
Dell Technologies CEO Michael Dell said Tuesday that while demand for computing power is “tremendous,” the production of artificial intelligence data centers will eventually top out.
“I’m sure at some point there’ll be too many of these things built, but we don’t see any signs of that,” Dell said on “Closing Bell: Overtime.”
The hardware maker’s server networking business grew 58% last year and was up 69% last quarter, Dell said. As large language models have evolved to more multimodal and multi-agent systems, the demand for AI processing power and capacity has continued to be strong.
Dell’s AI servers are powered by Nvidia‘s Blackwell Ultra chips. The company then sells its devices to customers like cloud service provider CoreWeave and xAI, Elon Musk’s startup.
Dell shares rose over 3% Tuesday after increasing its expected long-term revenue and profit growth in an analyst meeting.
The computer maker raised its expected annual revenue growth to 7% to 9%, up from its previous target of 3% to 4%, with diluted earnings per share now expected to be 15% higher, up from its previous 8% target.
The company reported strong second-quarter earnings in August, and said it planned to ship $20 billion worth of AI servers in fiscal 2026. That is double what it sold last year.
Dell year-to-date stock chart.
Technology
OpenAI’s Sora 2 must stop allowing copyright infringement, Motion Picture Association says
Cfoto | Future Publishing | Getty Images
The Motion Picture Association on Monday urged OpenAI to “take immediate and decisive action” against its new video creation model Sora 2, which is being used to produce content that it says is infringing on copyrighted media.
Following the Sora app’s rollout last week, users have been swarming the platform with AI-generated clips featuring characters from popular shows and brands.
“Since Sora 2’s release, videos that infringe our members’ films, shows, and characters have proliferated on OpenAI’s service and across social media,” MPA CEO Charles Rivkin said in a statement.
OpenAI CEO Sam Altman clarified in a blog post that the company will give rightsholders “more granular control” over how their characters are used.
But Rivkin said that OpenAI “must acknowledge it remains their responsibility – not rightsholders’ – to prevent infringement on the Sora 2 service,” and that “well-established copyright law safeguards the rights of creators and applies here.”
OpenAI did not respond to a request for comment.
Concerns erupted immediately after Sora videos were created last week featuring everything from James Bond playing poker with Altman to body cam footage of cartoon character Mario evading the police.
Although OpenAI previously held an opt-out system, which placed the burden on studios to request that characters not appear on Sora, Altman’s follow-up blog post said the platform was changing to an opt-in model, suggesting that Sora would not allow the usage of copyrighted characters without permission.
However, Altman noted that the company may not be able to prevent all IP from being misused.
“There may be some edge cases of generations that get through that shouldn’t, and getting our stack to work well will take some iteration,” Altman wrote.
Copyright concerns have emerged as a major issue during the generative AI boom.
Disney and Universal sued AI image creator Midjourney in June, alleging that the company used and distributed AI-generated characters from their films and disregarded requests to stop. Disney also sent a cease-and-desist letter to AI startup Character.AI in September, warning the company to stop using its copyrighted characters without authorization.
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