Meta’s stock wrapping up record year, spurred by cost cuts that followed disastrous 2022
Meta founder and CEO Mark Zuckerberg speaks during the Meta Connect event at Meta headquarters in Menlo Park, California, on Sept. 27, 2023.
Josh Edelson | AFP | Getty Images
Last year at this time, Meta was navigating a crisis of confidence that had pushed its stock price to its lowest since 2016. Sales were dropping, TikTok was rising, and CEO Mark Zuckerberg’s bet-the-house wager on the metaverse was looking like a money pit.
Wall Street saw a very different story play out in 2023.
As of Friday’s close, Meta shares are up 178% for the year, on pace for their best year ever, topping the 105% jump in 2013, which was the year after Facebook’s IPO. At $334.92, the stock is roughly 12% below its record high in September 2021, near the peak of the latest tech boom.
Among companies in the S&P 500, only chipmaker Nvidia had a better year, climbing 235% so far.
Meta’s mega bounceback validates Zuckerberg’s declaration in early February that 2023 would be the company’s “year of efficiency” following the stock’s 64% plunge in 2022. Hefty cost cuts were at the top of his agenda, with Facebook’s parent company cutting more than 20,000 jobs and Zuckerberg acknowledging that economic challenges, stepped-up competition and advertising losses “caused our revenue to be much lower than I’d expected.”
After three straight quarters of declining sales last year, growth returned in 2023, and for the third quarter Meta recorded expansion of 23%, its sharpest increase in two years. The results were driven by a rebound in digital advertising and market share gains over rivals Alphabet and Snap.
The biggest catalyst, according to Longbow Asset Management CEO Jake Dollarhide, was Zuckerberg’s “change of attitude” and his willingness to listen to shareholder concerns instead of seemingly dismissing them in favor of his preferred mode of operation.
While Zuckerberg continues to invest heavily in the metaverse, which he sees as his company’s future, he’s refocused the business toward what actually matters today — advertising — and responded to investor concerns about out-of-control spending.
“It was the change in tone from Zuck,” Dollarhide said. “He went from thumbing his nose at shareholders” and talking about the billions he was spending on the metaverse “to listening and communicating in a different way,” Dollarhide added.
Plenty of challenges remain as the calendar turns to 2024.
Meta said in its latest earnings report that the digital ad market is still rocky, in part because advertisers are weighing the potential impact of the Israel-Hamas war. The company is also dealing with a number of new lawsuits that allege its products are harmful and addictive to children. And virtual reality continues to be a niche market, despite Meta’s hefty promotions of its new Quest 3 headsets.
“As long as the core business is humming along and is kind of improving, I think investors will probably continue to give them a pass,” said John Blackledge, an analyst at Cowen who recommends buying the stock.
Meta declined to provide a comment for this story.
Meta has now had well over two years to adapt to one of the most harmful changes to its business in the almost two decades since Zuckerberg started the company in his Harvard dorm room. In 2021, Apple updated its iPhone operating system in a way that gave users more control over how they could be targeted with ads. The update hit at the heart of Facebook’s ad business and resulted in the loss of billions of dollars of revenue.
As hard as Apple’s privacy changes hurt Facebook, they were equally devastating to other social media companies, most notably Snap. But Meta quickly got to work rebuilding its ad technology, with a major investment in artificial intelligence, and in the latest quarter reported much faster revenue growth than Google or Snap.
China has been a big part of the story. Susan Li, Meta’s finance chief, told analysts on the earnings call that online commerce and gaming “benefited from spend among advertisers in China reaching customers in other markets.” That means Chinese companies are spending heavily on Facebook and Instagram to send targeted advertising to the company’s billions of users around the world.
A Shein pop-up store inside a Forever 21 store in Times Square in New York on Nov. 10, 2023.
Yuki Iwamura | Bloomberg | Getty Images
JMP analysts estimate that e-commerce companies Temu and Shein, which both have roots in China, spent about $600 million and $200 million, respectively, on ads with Meta in the third quarter, leading to year-over-year growth of 44% from Asian advertisers.
In addition to Apple’s changes, Meta was also hurt in 2022 by the rapid rise of TikTok, which pioneered the short-video market, and a rotation out of tech stocks due to rising interest rates and surging inflation. All the while, Zuckerberg’s big bet on the metaverse continued to pile up billions of dollars in losses, underscoring the challenges of making virtual reality and augmented reality technologies appealing to mainstream consumers.
Altimeter Capital Chair and CEO Brad Gerstner wrote an open letter to Meta and Zuckerberg in October 2022 urging the company to “get fit and focused” by cutting staff and reducing metaverse investments.
Tom Champion, an analyst at Piper Sandler, told CNBC that Meta had to adjust to a rapidly changing reality. During Covid, digital media and e-commerce took off and, because the economy remained strong at the time, consumers and businesses had plenty of money to spend.
“We all extrapolated the growth trends around digital advertising that emerged during the pandemic, and Meta management invested behind that extrapolation of the trend as well,” said Champion, who has a buy rating on the stock. “The revenue picture changed a hell of a lot faster than cost.”
A few weeks after the Altimeter letter, Zuckerberg announced the first of what would be three rounds of layoffs affecting about 25% of the company’s workforce. Zuckerberg admitted to miscalculating what would happen when the economy reopened from the pandemic.
Reasons for skepticism
Meta’s initial round of layoffs in 2022 helped kickstart the stock’s rebound.
Then in February, Meta revealed that its total expenses for 2023 would be in the range of $89 billion to $95 billion, which was lower than its prior 2023 outlook of $94 billion to $100 billion.
The shares shot up 76% in the first quarter.
Ultimately, it appears as if expenses will be even lower than that revised number. Meta said in October that total costs for the year will be between $87 billion and $89 billion.
But, as Blackledge notes, Zuckerberg has so far largely spared the Reality Labs unit, which houses the company’s work in metaverse hardware and software. Meta said in its third-quarter report that operating losses in Reality Labs will “increase meaningfully year-over-year due to our ongoing product development efforts in augmented reality/virtual reality and our investments to further scale our ecosystem.”
The division lost $3.7 billion in the period and over $11 billion in the first nine months of the year.
Zuckerberg has spent much of the year touting Meta’s investments in AI, which has helped bolster its ad technology. Included in that conversation is the work Meta has done in building its large language model called Llama, which has gained popularity since OpenAI’s ChatGPT chatbot introduced the concept of generative AI to the mainstream.
“It’s a little tough for me to draw a line between a technology like Llama and the core business, but I think there are enough announcements and discussion and commentary from management to suggest that they are harnessing this technology in a lot of different ways,” Champion said.
Champion added that AI has helped Meta more efficiently operate its data centers, and he’s optimistic about the company’s use of AI to create more compelling digital assistants that could be useful for business messaging.
Despite Meta’s strong performance in 2023, Needham’s Laura Martin remains skeptical.
Martin has a sell rating on the stock, making her one of only two analysts tracked by FactSet without a buy or hold recommendation. She says 2024 will be a “cautionary tale” for the company because it still faces some major existential issues.
Meta doesn’t control a platform like Apple’s iOS or Google’s Android, which means it remains at risk of significant policy changes at those companies. While Meta eventually managed to weather Apple’s iOS privacy update through its AI investments, it now has to deal with Google’s upcoming plans to phase out third-party cookies in 2024, which will likely have a similarly weakening effect on its online ad business, Martin said.
“Cookie deprecation on Android is a big deal,” she said.
On top of that, Martin sees smart TVs as the area where advertisers are looking to divert spending as the major streaming platforms continue to pick up users who are abandoning linear television. That’s not Meta’s market.
Then there’s the influencer problem. Popular content creators are focusing their efforts on TikTok and YouTube, catering to younger audiences. A recent Pew Research Center study found that nearly 1 in 5 young adults say they use those video-streaming apps “almost constantly.”
TikTok, which is owned by China’s ByteDance, faces the risk of being shut down by U.S. lawmakers who have tried to make the case that it’s a national security concern. But that issue has been sidelined for months and in November a federal judge in Montana blocked a law that would have resulted in a statewide ban of TikTok starting in January.
Analysts aren’t expecting TikTok to go anywhere, meaning it will continue to pose a challenge to Meta.
“The regulators can’t get stuff done,” Martin said.
Piper Sandler’s Champion said he “personally can’t imagine in America where something like TikTok gets banned.” But he added, “Who knows — anything can happen.”
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Google CEO Sundar Pichai testifies before the House Judiciary Committee at the Rayburn House Office Building on December 11, 2018 in Washington, DC.
Alex Wong | Getty Images
Google’s antitrust woes are continuing to mount, just as the company tries to brace for a future dominated by artificial intelligence.
On Thursday, a federal judge ruled that Google held illegal monopolies in online advertising markets due to its position between ad buyers and sellers.
The ruling, which followed a September trial in Alexandria, Virginia, represents a second major antitrust blow for Google in under a year. In August, a judge determined the company has held a monopoly in its core market of internet search, the most-significant antitrust ruling in the tech industry since the case against Microsoft more than 20 years ago.
Google is in a particularly precarious spot as it tries to simultaneously defend its primary business in court while fending off an onslaught of new competition due to the emergence of generative AI, most notably OpenAI’s ChatGPT, which offers users alternative ways to search for information. Revenue growth has cooled in recent years, and Google also now faces the added potential of a slowdown in ad spending due to economic concerns from President Donald Trump’s sweeping new tariffs.
Parent company Alphabet reports first-quarter results next week. Alphabet’s stock price dipped more than 1% on Thursday and is now down 20% this year.
In Thursday’s ruling, U.S. District Judge Leonie Brinkema said Google’s anticompetitive practices “substantially harmed” publishers and users on the web. The trial featured 39 live witnesses, depositions from an additional 20 witnesses and hundreds of exhibits.
Judge Brinkema ruled that Google unlawfully controls two of the three parts of the advertising technology market: the publisher ad server market and ad exchange market. Brinkema dismissed the third part of the case, determining that tools used for general display advertising can’t clearly be defined as Google’s own market. In particular, the judge cited the purchases of DoubleClick and Admeld and said the government failed to show those “acquisitions were anticompetitive.”
“We won half of this case and we will appeal the other half,” Lee-Anne Mulholland, Google’s vice president or regulatory affairs, said in an emailed statement. “We disagree with the Court’s decision regarding our publisher tools. Publishers have many options and they choose Google because our ad tech tools are simple, affordable and effective.”
Attorney General Pam Bondi said in a press release from the DOJ that the ruling represents a “landmark victory in the ongoing fight to stop Google from monopolizing the digital public square.”
Potential ad disruption
If regulators force the company to divest parts of the ad-tech business, as the Justice Department has requested, it could open up opportunities for smaller players and other competitors to fill the void and snap up valuable market share. Amazon has been growing its ad business in recent years.
Meanwhile, Google is still defending itself against claims that its search has acted as a monopoly by creating strong barriers to entry and a feedback loop that sustained its dominance. Google said in August, immediately after the search case ruling, that it would appeal, meaning the matter can play out in court for years even after the remedies are determined.
The remedies trial, which will lay out the consequences, begins next week. The Justice Department is aiming for a break up of Google’s Chrome browser and eliminating exclusive agreements, like its deal with Apple for search on iPhones. The judge is expected to make the ruling by August.
Google CEO Sundar Pichai (L) and Apple CEO Tim Cook (R) listen as U.S. President Joe Biden speaks during a roundtable with American and Indian business leaders in the East Room of the White House on June 23, 2023 in Washington, DC.
Anna Moneymaker | Getty Images
After the ad market ruling on Thursday, Gartner’s Andrew Frank said Google’s “conflicts of interest” are apparent by how the market runs.
“The structure has been decades in the making,” Frank said, adding that “untangling that would be a significant challenge, particularly since lawyers don’t tend to be system architects.”
However, the uncertainty that comes with a potentially years-long appeals process means many publishers and advertisers will be waiting to see how things shake out before making any big decisions given how much they rely on Google’s technology.
“Google will have incentives to encourage more competition possibly by loosening certain restrictions on certain media it controls, YouTube being one of them,” Frank said. “Those kind of incentives may create opportunities for other publishers or ad tech players.”
A date for the remedies trial hasn’t been set.
Damian Rollison, senior director of market insights for marketing platform Soci, said the revenue hit from the ad market case could be more dramatic than the impact from the search case.
“The company stands to lose a lot more in material terms if its ad business, long its main source of revenue, is broken up,” Rollison said in an email. “Whereas divisions like Chrome are more strategically important.”
WATCH: U.S. judge finds Google holds illegal online ad-tech monopolies
Jason Citron, CEO of Discord in Washington, DC, on January 31, 2024.
Andrew Caballero-Reynolds | AFP | Getty Images
The New Jersey attorney general sued Discord on Thursday, alleging that the company misled consumers about child safety features on the gaming-centric social messaging app.
The lawsuit, filed in the New Jersey Superior Court by Attorney General Matthew Platkin and the state’s division of consumer affairs, alleges that Discord violated the state’s consumer fraud laws.
Discord did so, the complaint said, by allegedly “misleading children and parents from New Jersey” about safety features, “obscuring” the risks children face on the platform and failing to enforce its minimum age requirement.
“Discord’s strategy of employing difficult to navigate and ambiguous safety settings to lull parents and children into a false sense of safety, when Discord knew well that children on the Application were being targeted and exploited, are unconscionable and/or abusive commercial acts or practices,” lawyers wrote in the legal filing.
They alleged that Discord’s acts and practices were “offensive to public policy.”
A Discord spokesperson said in a statement that the company disputes the allegations and that it is “proud of our continuous efforts and investments in features and tools that help make Discord safer.”
“Given our engagement with the Attorney General’s office, we are surprised by the announcement that New Jersey has filed an action against Discord today,” the spokesperson said.
One of the lawsuit’s allegations centers around Discord’s age-verification process, which the plaintiffs believe is flawed, writing that children under thirteen can easily lie about their age to bypass the app’s minimum age requirement.
The lawsuit also alleges that Discord misled parents to believe that its so-called Safe Direct Messaging feature “was designed to automatically scan and delete all private messages containing explicit media content.” The lawyers claim that Discord misrepresented the efficacy of that safety tool.
“By default, direct messages between ‘friends’ were not scanned at all,” the complaint stated. “But even when Safe Direct Messaging filters were enabled, children were still exposed to child sexual abuse material, videos depicting violence or terror, and other harmful content.”
The New Jersey attorney general is seeking unspecified civil penalties against Discord, according to the complaint.
The filing marks the latest lawsuit brought by various state attorneys general around the country against social media companies.
In 2023, a bipartisan coalition of over 40 state attorneys general sued Meta over allegations that the company knowingly implemented addictive features across apps like Facebook and Instagram that harm the mental well being of children and young adults.
The New Mexico attorney general sued Snap in Sep. 2024 over allegations that Snapchat’s design features have made it easy for predators to easily target children through sextortion schemes.
The following month, a bipartisan group of over a dozen state attorneys general filed lawsuits against TikTok over allegations that the app misleads consumers that its safe for children. In one particular lawsuit filed by the District of Columbia’s attorney general, lawyers allege that the ByteDance-owned app maintains a virtual currency that “substantially harms children” and a livestreaming feature that “exploits them financially.”
In January 2024, executives from Meta, TikTok, Snap, Discord and X were grilled by lawmakers during a senate hearing over allegations that the companies failed to protect children on their respective social media platforms.
WATCH: The FTC has an uphill battle in its antitrust case against Meta.
Signage at 23andMe headquarters in Sunnyvale, California, U.S., on Wednesday, Jan. 27, 2021.
David Paul Morris | Bloomberg | Getty Images
The House Committee on Energy and Commerce is investigating 23andMe‘s decision to file for Chapter 11 bankruptcy protection and has expressed concern that its sensitive genetic data is “at risk of being compromised,” CNBC has learned.
Rep. Brett Guthrie, R-Ky., Rep. Gus Bilirakis, R-Fla., and Rep. Gary Palmer, R.-Ala., sent a letter to 23andMe’s interim CEO Joe Selsavage on Thursday requesting answers to a series of questions about its data and privacy practices by May 1.
The congressmen are the latest government officials to raise concerns about 23andMe’s commitment to data security, as the House Committee on Oversight and Government Reform and the Federal Trade Commission have sent the company similar letters in recent weeks.
23andMe exploded into the mainstream with its at-home DNA testing kits that gave customers insight into their family histories and genetic profiles. The company was once valued at a peak of $6 billion, but has since struggled to generate recurring revenue and establish a lucrative research and therapeutics businesses.
After filing for bankruptcy in in Missouri federal court in March, 23andMe’s assets, including its vast genetic database, are up for sale.
“With the lack of a federal comprehensive data privacy and security law, we write to express our great concern about the safety of Americans’ most sensitive personal information,” Guthrie, Bilirakis and Palmer wrote in the letter.
23andMe did not immediately respond to CNBC’s request for comment.
23andMe has been inundated with privacy concerns in recent years after hackers accessed the information of nearly 7 million customers in 2023.
DNA data is particularly sensitive because each person’s sequence is unique, meaning it can never be fully anonymized, according to the National Human Genome Research Institute. If genetic data falls into the hands of bad actors, it could be used to facilitate identity theft, insurance fraud and other crimes.
The House Committee on Energy and Commerce has jurisdiction over issues involving data privacy. Guthrie serves as the chairman of the committee, Palmer serves as the chairman of the Subcommittee on Oversight and Investigations and Bilirakis serves as the chairman of the Subcommittee on Commerce, Manufacturing and Trade.
The congressmen said that while Americans’ health information is protected under legislation like the Health Insurance Portability and Accountability Act, or HIPAA, direct-to-consumer companies like 23andMe are typically not covered under that law. They said they feel “great concern” about the safety of the company’s customer data, especially given the uncertainty around the sale process.
23andMe has repeatedly said it will not change how it manages or protects consumer data throughout the transaction. Similarly, in a March release, the company said all potential buyers must agree to comply with its privacy policy and applicable law.
“To constitute a qualified bid, potential buyers must, among other requirements, agree to comply with 23andMe’s consumer privacy policy and all applicable laws with respect to the treatment of customer data,” 23andMe said in the release.
23andMe customers can still delete their account and accompanying data through the company’s website. But Guthrie, Bilirakis and Palmer said there are reports that some users have had trouble doing so.
“Regardless of whether the company changes ownership, we want to ensure that customer access and deletion requests are being honored by 23andMe,” the congressmen wrote.
WATCH: The rise and fall of 23andMe
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