Yesterday saw a meteoric rise in Meta Platforms (NASDAQ:META) shares. After closing Wednesday at $153, the Meta share priced finished Thursday at $188.77, a jump of over 23%. Positive results released after the market closed were the main catalyst. Yet with the stock still down 20% over the past year, I think it has room to go even higher. Here’s why.
Positive points from earnings
The Q4 results came out — as they usually do — with the full-year figures. This showed that the number of daily active users on Facebook rose by 4% year on year, finally breaking the 2bn mark. This is a staggering amount of users on a platform and shows the dominance (and growth) that the site still has.
Another positive was taken from the reduction in costs that’s forecast going forward. Costs are expected to fall by $5bn in 2023, partly due to the headcount cuts of 11,000 that were announced late last year. A broader restructuring is going on to reduce inefficiencies as well, which led CEO Mark Zuckerberg to refer to this coming year as the “year of efficiency”.
Finally, there was cheer from the $40bn share repurchase plan that was announced. Meta does only have $40.74bn in cash and cash equivalents on hand, so I’m not entirely sure how it plans to fund the repurchasing, but I’ll leave that for the accountants to work out!
Some risks to note
Investors clearly took the overall report as a large positive, shown by the jump in the Meta share price. Yet there are also some points I’m cautious about.
For a start, net income fell by 51% for Q4 2022 versus Q4 2021. It was down 41% on a full-year basis. Revenue dropped by 1%, with spiralling costs driving profit lower. Zuckerberg can make all of the catchy statements he wants, but only time will tell if cost-cutting actually filters down to net income improvements.
The business is slightly confused about the direction going forward. There’s the metaverse, which was strongly pushed last year. There’s also the traditional platforms such as Facebook and Instagram. It also spoke of development in artificial intelligence and Reels products. A lack of focus on one key area could be costly.
More upside potential ahead
Yet I feel that Meta shares could continue to head higher. The short-term bad news last year of cost reduction is now behind us. Investors are focused on the future, that of a nimble and more efficient company. If we continue to get good news that the restructure is going well, I feel more investors will pile back into the stock.
Further, the slump from last year means that the price-to-earnings ratio is only 17.17 (even with the jump yesterday). For a tech giant, this is very reasonable and so gives me confidence to buy. It also means that the share price can continue to rally without it being overvalued. On that basis I’m seriously considering adding some Meta shares to my portfolio.
