Meta’s bottom-line looks amazing – diluted EPS almost tripled from a year ago (+168% yoy).
How?
- Headcount shrunk 25%
- Revenue grew 25%
- $20bn+ buyback in the past 4 quarters
Cheers to Susan Li, the new CFO announced back in 2022q2 earnings. Delivering numbers that investors needed.
Efficiency has improved dramatically – quarterly operating income per full-time employee more than tripled from $65k to $208k.
AI story is impressive; and Metaverse is not dead.
What are the concerns?
1) two-year cagr not impressive: at the midpoint of 2023q4 guidance, two year revenue cagr (vs 2021q4) is <7%.
Two year ads revenue carg for US, Canada and Europe is 6.7% in 2023q3.
Remember, most of Meta’s revenue is ads in US, Canada and Europe (2/3 in 2023q3). User growth obviously is not meaningful. It needs ARPU to grow. While ads pricing won’t be strong given macro uncertainties, it will then rely on showing more ads to users, which won’t be something people would enjoy.
2) operating cost would be higher: infrastructure cost would rise due to AI investments. Reality Lab operating cost would be higher. Two large layoffs were done; hard to cut further. More importantly, new revenue streams are less lucrative than ads (which has over 80% gross margin).
2) regulation, fine: Meta was sued – that has hit the headline. Meanwhile, EU’s DMA would take effect next year. Plus, AI is very data-driven. However, can companies easily get data this time around?
Will EPS continue to grow at 15% or above for 2024, 2025 and beyond? I think doable, but is AI an easily profitable business? Let’s see.