Last year was a tough one to be a Meta Platforms (META 0.73%) investor. The stock plunged 64% as marketers pulled back on ad spending, denting the company's returns.
Yet so far this year, it appears all is forgiven. The stock has more than doubled so far in 2023, gaining roughly 173% since its trough in early November. Anticipation regarding the end of the downturn is on the upswing -- helping boost investor confidence and the broader market as a whole, which is no doubt helping to fuel Meta's rise.
However, the biggest contributors to the stock's epic move are the company's dramatic cost-cutting efforts and evidence that artificial intelligence (AI) has helped Meta regain its competitive advantage.
Image source: Getty Images.
Slashing the budget
When Meta Platforms reported its results, the company dramatically lowered its 2023 expense forecast, the second consecutive downward revision. In Meta's first-quarter earnings press release, the company reduced its forecast to a range of $86 billion to $90 billion, down from a range of $89 billion to $95 billion sequentially. This, in turn, was lower than the original outlook for expenses of between $94 billion and $100 billion.
The declining expense profile is the result of the company's mass layoffs, which include 21,000 job cuts (thus far) -- or 24% of Meta's current workforce, as well as the elimination of 5,000 unfilled job vacancies. The company is also eliminating low-priority, low-return projects and reducing its real estate footprint.
This leaner operating budget will help position Meta Platforms for continued success when the economy rebounds.
Getting back its mojo
The downturn over the past year or so has been one of the biggest challenges Meta has faced, but changes to the landscape have also weighed on its results. Data privacy measures enacted by the likes of Apple have made it more difficult for Meta to target its audience and accurately measure the results.
Meta has been using AI to get back its strategic advantage. Late last year, Meta introduced Advantage+ Shopping Campaigns, which harnesses AI and machine learning to help automate the ad creation process. The process helps to quickly identify which ad combinations are working, while targeting the audience most likely to respond to the ads. Marketers are reportedly experiencing stronger conversion and improved ad efficiency.
Initial reports from Meta showed that advertisers got a boost during the important holiday shopping season. Those that relied on Advantage+ reported improving their cost per acquisition by 17%, while also experiencing a 32% increase in return on ad spending compared to normal campaigns.
What's more, on the earnings call, CEO Mark Zuckerberg said that roughly 20% of the content in Facebook and Instagram feeds is "recommended by AI from people, groups, and accounts you don't know," and thus far that strategy has been a screaming success. Since Reels was launched, these AI-fueled recommendations have resulted in a 24% increase in time spent on Instagram. Zuckerberg also dropped this nugget:
Our AI work is also improving monetization. Reels monetization efficiency is up over 30% on Instagram and over 40% on Facebook quarter-over-quarter. Daily revenue from Advantage+ Shopping Campaigns is up 7x in the last six months.
Improving financial picture
Thus far, the results are telling. After three sequential quarters of year-over-year revenue declines, Meta Platforms chocked up a win, as its first-quarter revenue grew 3%, or 6% excluding changes in foreign currency exchange rates.
It's perhaps too soon to suggest Meta's problems are over, but the results are a step in the right direction. Plus, when the economic headwinds subside, as they no doubt will, this should remove another stumbling block from the company's path. Add to that Meta's leaner operating budget and AI-fueled efficiency gains and you have a recipe for success.
Oh -- did I mention that Meta Platforms is currently selling for just 4 times next year's sales, far below its 10-year average of 11 -- making it a steal at these prices?
