At the start of pandemic lockdowns in March 2020, I bet with a friend on instant messenger that shares of the social media giant — then called Facebook — could easily double over the next three years. It was a bet that I was sure I was going to lose. The stock price was hovering around US$150 at the time. Within 13 months, Facebook shares had crossed the US$300 mark. But the bar was too low because the bet was made during the market’s pandemic selloff. So, in April 2021, we remade the bet: The stock will go up another US$150 to US$450, or triple the original amount, by April. It was a fun bet; I was sure I would lose.
On Feb 1, the company — since renamed Meta Platform — reported fourth-quarter 2023 earnings. Revenue was up 24.7% in the quarter; engagement was up 24% due to the popularity of short-form videos Reels driven by AI, while free cash flow was up 110%. At the same time, expenses were down 22%. Meta controlled its spending on augmented and virtual reality (AR/VR) and doubled down on artificial intelligence or AI. Net income was up 202% compared to the year-ago quarter.
Meta stock surged 20.3% the next day to close at a record high after “monumental” earnings. That amounted to a US$200 billion ($269 billion) gain in market value in one day. Meta is now worth US$1.2 trillion. The parent of Facebook also announced its first-ever quarterly dividend of 50 US cents a share and authorised another US$50 billion in share buybacks. It had spent US$20 billion on share repurchases last year and has US$11 billion left from a previous share buyback authorisation.
The huge jump in Meta’s shares gave founder Mark Zuckerberg a US$33 billion gain in net worth. As the world’s fourth richest person — behind electric vehicle pioneer Elon Musk (net worth US$205 billion), Amazon founder Jeff Bezos (US$197 billion) and LVMH’s CEO Bernard Arnault (US$185 billion) — the social network supremo is now worth over US$170 billion and stands to receive US$696 million in dividends from Meta every year. Southeast Asia’s richest person is Brazil-born, Singapore-based Eduardo Saverin — a Facebook co-founder and Zuckerberg’s former dorm roommate — whose total net worth last week jumped to around US$30 billion or more than twice the combined wealth of Singapore’s second richest, siblings Robert and Philip Ng of Far East Organization and Sino Land. Saverin is now the world’s 64th wealthiest person.
Into the metaverse
It was a dramatic change of fortune for a company that has been much derided in recent years for “proactively amplifying and promoting” hate speech, violating privacy and getting teenagers addicted to social media. It has also been under an antitrust microscope and faced allegations that it ignores safety issues for growth. Meta operates social networks, including Facebook, Instagram, Messenger and WhatsApp, that reach nearly four billion people globally or almost every other person on Earth. The world’s total population is about 8.09 billion. Take out young kids, very old adults and those who are too sick; Meta apps are probably used by almost every literate person with Internet access.
In late 2021, Zuckerberg’s firm was rebranded Meta as part of its pivot towards the metaverse. Chinese-owned short video app TikTok had been giving Meta’s Facebook and Instagram a run for their money, siphoning away users and advertisers. The company had also been hamstrung by Apple’s App Tracking Transparency (ATT), a privacy framework that required users to “opt in” via a prompt to share their device ID with an app developer or marketer. Since most iPhone or iPad users opted out, Meta could not use their data to sell ads. Analysts estimate that Meta lost up to US$13 billion in ad revenues over a year and a half because of Apple’s privacy drive.
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Zuckerberg has said that the lesson he has learnt from the ATT episode is that he should build his tracks rather than relying on a gatekeeper like Apple on whose rails Meta needed to help access data and sell ads. Yet its audacious pivot to the metaverse only led Meta to splash tens of billions on Reality Labs, its virtual reality division, like there was no tomorrow just as advertising was softening.
As the US Federal Reserve raised interest rates from zero in March 2022 to 5.25% last year, equity markets underwent a sharp correction and global economies slowed. Meta business and its stock were hit particularly hard. The social media giant’s stock plummeted over 75% to under US$90 a share. Investors rushed for the exit. In hindsight, it was a huge overreaction. While Meta faced serious headwinds, its stock didn’t deserve a doomsday valuation.
The efficiency drive
After months of ignoring critics, in March 2023, Zuckerberg got religion and unveiled his grand turnaround plan.“Flatter is faster, leaner is better,” he said in a note to employees as Meta fired 21,000 staffers.
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The founder dubbed 2023 as the “year of efficiency” at the company. He slashed costs and spending on new ventures, including the metaverse. He also put an army of software engineers to figure out a workaround for Apple’s ATT restrictions so that the company could start growing ad revenues again. Yet, he continued to fund his metaverse ambitions. Meta will spend over US$20 billion on its Reality Labs this year, and analysts expect revenues for that division to be around US$3.5 billion to US$4 billion.
Last year, the US avoided a recession, and the economy headed for a soft landing. By late 2023, as ad revenues began growing again and efficiency gains were finally kicking in, Meta sprung a surprise blowout earnings last week. Less spending and more revenues equals higher profits and a higher stock price. Add a doubling down on share buybacks, a first-ever quarterly dividend and a bigger push in AI and investors sit up in awe. Zuckerberg was telling investors: We are confident that we will continue to grow.
Let me give you an idea of how big the transformation at Zuckerberg’s company has been. Meta reduced its workforce from 87,000 to 67,000, resulting in a nearly threefold increase in earnings per employee over the past five quarters. Meta has started rehiring staff, especially in AI, and reinstated perks like free haircuts and laundry. Dinner time has been shifted to 6pm, and Thursday happy hours are back. Nothing boosts staff morale more than free food and laundry.
Dramatic turnarounds are rare in the tech world. Steve Jobs did it with Apple two decades ago when he remade the Mac maker that was just weeks away from bankruptcy and turned it into the world’s most profitable enterprise with a pivot to other consumer electronics devices like iPhone, iPads, AppleWatch, AirPods and more recently, the mixed reality headset VisionPro. Satya Nadella has done a remarkable job turning around Microsoft. However, the software company had the luxury of nearly US$100 billion in net cash on its balance sheet and a near monopoly of PC operating system software.
Now Meta is being heralded as tech’s ultimate “comeback kid”. Like Steve Jobs at Apple, Zuckerberg has the founder’s authority to marshal his troops, draw up a strategy and focus on turning the ship around. Unlike Tesla’s CEO Elon Musk, who gave himself US$56 billion in stock options and is asking his board to give him billions more so he can raise his stake to 25%, Zuckerberg receives a mere $1 annual salary, no bonus, and lacks access to the company’s stock options plan.
Open source large language models
Forget about all the big numbers from Meta like strong revenue growth, tripling earnings per share last quarter, or the guidance suggesting a trillion-dollar company is still expected to chalk up over 20% this year. Meta’s real advantage is its AI pivot. Until now, Microsoft, Amazon and Google’s parent Alphabet have been seen as the main AI plays. Microsoft has 49% economic interest in Open AI, which is developing large language models like the ones that power chatbots like ChatGPT, while Google and Amazon have stakes in rival Anthropic and are also developing their large language models and chatbots. Last week, Amazon talked about Rufus, its new AI-powered shopping assistant. But those are all proprietary models.
Meta, for its part, has taken a different route. It is focused solely on open-source large language models like LLaMa. Last week, Zuckerberg unveiled Meta’s long-term strategy for becoming a leader in building the most advanced AI products and services. Meta founder and CEO said his company was focused on “full artificial general intelligence” or sentient AI with human-like intelligence.“Our long-standing strategy has been to build an open-source general infrastructure while keeping our specific product implementations proprietary,” Meta’s founder said. “In the case of AI, the general infrastructure includes our Llama models, including Llama 3, which is training now and is looking great so far, as well as industry-standard tools like PyTorch that we’ve developed.”
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It’s not AI for AI’s sake but to drive revenues and profits. By the end of this year, Meta intends to deploy 600,000 top-end AI chips like Nvidia’s H100 chips to improve the quality of Instagram Reels, TikTok’s main competitor.
Part of Meta’s problem in 2021 was TikTok’s rise, which was wooing Meta users away from Instagram, Facebook and WhatsApp to its addictive AI-powered short videos. Over the past two years, Reels has successfully wooed some TikTok users back to its platform. Now, Zuckerberg wants to double down and use the most powerful AI to take on TikTok. “We’re well-positioned now because of the lessons we learned from Reels,” Zuckerberg said last week.
Why open source? Why doesn’t Meta do what Microsoft and Google have done? “There are several strategic benefits,” he explained last week. “First, open-source software is typically safer, more secure, and more computationally efficient due to all the community’s ongoing feedback, scrutiny, and development.”
After a spectacular earnings beat and a well-executed year of efficiency, what will Meta do for an encore? There were clues in the small print of its guidance last week. For one thing, an AI pivot will be expensive. Meta raised its projection for full-year capital expenditure to a whopping US$37 billion this year as it builds more data centres and servers for AI.
Meta has also vowed to continue spending on the metaverse. Eventually, the market would demand revenues and profits commensurate with huge spending. Meta’s stock, once the cheapest of the Magnificent Seven large-cap tech stocks, is now trading at 7.6 times forward sales. Rival Alphabet trades at just five times sales. As for me, I won’t be betting on its share price going up another US$150 anytime soon. The stock is no longer cheap, and the low-hanging fruits have already been picked.
Assif Shameen is a technology and business writer based in North America
