Congratulations to any investor who was holding Meta Platforms (META 1.06%) prior to Wednesday's close. Shares jumped more than 23% on Thursday, driven higher by the announcement of a $40 billion buyback. That's roughly a tenth of the company's current market cap, and nearly twice last year's net income... a pretty big deal. The social media giant continued to add users too, assuring nervous investors it's still got a few growth tricks up its sleeve.
Before presuming everything is completely hunky-dory in Meta-land, though, you might want to digest a couple of concerning details about the fourth quarter's numbers.
1. Spending is changing, but still sky-high
It takes money to make money -- nobody's denying that. Meta's spending, however, isn't nearly as cost-effective as it was just a few quarters ago.
To the company's credit, research and development expenses as a percentage of revenue were pared back a bit from the third quarter's 33%. At 30%, however, that's still not much bang for its buck compared to 2021's (and 2020's, and 2019's) levels closer to 20%. In the meantime, cost of revenue jumped to a multi-year high of 26%, and it's not like market and sales spending or administrative spending are being curbed. They're up too.
Image source: Meta Platforms Inc. Q4-2022 Report.
Meta's well aware. As CFO Susan Li mentioned in Wednesday's Q4 earnings call: "We are working across the company to de-prioritize lower ROI work, move faster, increase productivity and reduce costs across the business." This effort includes a careful look at hiring and management bloat, and more scrutiny of existing projects. Li adds: "I'm confident that our company-wide focus on efficiency will position us to be an even more productive organization going forward."
Without any specifics, though, there's little to no assurance Meta will even be able to put the brakes on spending.
A tepid economy is prompting advertisers to tighten their purse strings in the meantime anyway, with last quarter's top line slumping 4% year over year. Meta's cost-cutting may only make matters worse by making it more difficult to win business.
2. The wrong place to drive user growth
But can the company offset this weakness with raw user growth? Not so fast.
Yes, flagship platform Facebook picked up another 5 million users last quarter, bringing the tally up to 2.963 billion. None of that growth, however, materialized in the United States, Canada, Europe, or the Asia-Pacific region. All of it came from the "Rest of World" market, where the company realizes the lowest ARPU (average revenue per user).
Image source: Meta Platforms Inc. Q4-2022 Report.
And that lower ARPU is dramatically lower: $3.52 per quarter versus a global average of $10.86.
Image source: Meta Platforms Inc. Q4-2022 Report.
The only bright spot buried within this nuance is that the Rest of World average revenue per user is the only one that grew year over year last quarter. The ARPU fell everywhere else.
Take the hint(s)
These two details don't necessarily spell doom for Meta. They do raise critical questions, though. Namely, they raise the question of whether the company will ever be able to achieve significant growth again. Economic weakness can't get all the blame for the current, strengthening headwind.
If you own it and aren't sure you want to keep it, now might be a smart time to lock in some gains and walk away for a while. If you're watching Meta from the sidelines, you may want to hold off until it's clear the company can actually contain expenses as described, and rekindle real revenue growth despite cost-cutting. That's a pretty tall order.
