What happened
Shares of Meta Platforms (META -4.13%) jumped 24.4% so far this week, according to data provided by S&P Global Market Intelligence, in large part because of the company's fourth-quarter 2022 earnings report. And the big move helped pull the entire tech industry higher.
So what
Revenue was actually down 4.2% in the quarter to $31.3 billion but operating income dropped from $12.6 billion to $6.4 billion. The operating margin went from 36% to 20%.
The reason for the pop had more to do with CEO Mark Zuckerberg's comments and the trends of user attention than the financial numbers. Zuckerberg reiterated that Meta is focused on efficiency, at least in its "family of apps" business, after losing investor confidence a quarter ago.
Engagement is a bigger long-term driver and investors saw that Reels is not losing market share to TikTok the way it once was. Reels doesn't generate ad revenue in the same way as the newsfeed does, but management said that's improving, which means that over the next few years it's likely earnings will rise again.
Now what
The stock's reaction was more of a continued recovery from the late 2022 lows than an endorsement of the numbers. Shares may have fallen too far and this is more of a normalization.
What I see in the results is that it'll likely be harder for Meta to generate the same margins from Reels ads than it could in the newsfeed. On top of that, the company is burning $17 billion on an annualized basis building the metaverse. The market may have liked these results, but I think the pop is overdone and I'll stay out of the stock for now.
