To The Moon

Meta'Q4 earnings just shows a great difference to Snap, who post Q4 earnings one day ago. Since the whole ads industry is threatened by recession, Facebook still plays better.

Q4 Earnings Overview

• Revenue 32.165 billion US dollars, down 4% year-on-year, higher than the market consensus of 31.6 billion US dollars;
• Gross profit US $23.8 billion, down 13% year-on-year, lower than the market consensus of US $25 billion;
• EBIT US $6.4 billion, down 49% year-on-year, lower than the market consensus of US $7.9 billion.

Bottom line is not excellent, with both COGS and operating expenses exceed market consensus. But the company also explained that rising COGS is due to write-down of data center assets. It will not affect long-term prospect.

Facebook's layoffs in Q4 are also contribute to the profit. General administrative expenses $3.09 billion, which is 15% lower than the market expectation of $3.6 billion. This trend will continue.

As for operating data, average monthly active users of Facebook, Instagram, WhatsApp and other applications reached 3.74 billion, and the daily active users also reached 2.96 billion. At the same time, Average revenue per user (ARPU) reached $10.86, the highest level in 2022Although it decreased by 6.1% year-on-year, it increased by 15.4% month-on-month.

Revenue from advertising business still dominated, with a year-on-year decline of 4.2% due to industry recession, but it was also better than the market expectation of a 6% decline. The revenue of virtual reality laboratories including AR (Augmented Reality) and VR (Virtual Reality) related hardware, software and content was US $727 million, down 17.1% year-on-year.But it was better than the market consensus of $650 million.

Why did the market abandon Snap but embrace Meta?

First, market consensus are different. This is not the first time Meta record a decelerated growth, investors who should have sold have sold already. The market expectation of Q4 was low, so a little bit beat could boost the price.

Mark is good at estimation management.

Second, the quality of core assets. Although Q4's profit fell short of expectations, Meta's free cash flow still reached 5.3 billion US dollars, and the market expected only 2.2 billion US dollars. As we all know, Meta's assets are a large amount of cash, and its current assets cover more than enough total liabilities. Therefore, for company shareholders, companies with large amounts of cash are often safer in the expected recession cycle.

Therefore, Meta's investors are full of institutional investors such as sovereign funds and pensions. Their positions are often long-term and stable, and they are willing to increase their positions in time for callback.

Is Meta's after-hours rally sustainable?

We believe it is.

1. Meta has provided 23Q1 guidance, with the revenue about 26-28.5 billion US dollars, a year-on-year decline of about 2.5%,  better than the market consensus and the possible decline of 10% provided by Snap the day before yesterday.

2. Company's repurchase plan has been upgraded to 40 billion US dollars. It is important to know that Meta's market value has fallen below 200 billion US dollars in 22 years. Although this repurchase is a 20-year plan, it can also provide long-term support for stock prices like $Apple(AAPL)$ .