Meta Platforms:Quarterly Results/2023 Q4

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See also: Sheet:Meta Platforms | Meta Platforms:Quarterly Results | Earnings Season:2023 Q4 | Meta Platforms:Quarterly Results/2023 Q3 | Meta Platforms:Quarterly Results/2023 Q2

Results

Here are the Q4 2023 numbers;

• Revenue grew by 25% y/y to $40.11 billion, in line with management's upper guidance of $40 billion (+24.3%) and above analysts’ estimate of $39.09 billion (+21.5%).
• Earnings per share was $5.33 versus $4.99 analysts’ estimate while operating margin rose to 41% from 20% a year ago.
• Facebook Daily Active Users (DAUs) rose 6% y/y to 2.11 billion (analysts’ estimate: 2.07 billion or +3.3% y/y), Facebook Monthly Active Users (MAUs) increased by 3% to 3.07 billion (estimate:3.06 billion).The average Family daily active people (DAP) rose 8% y/y to 3.19 billion (analysts’ estimate: 3.11 billion) while Family monthly active people (MAP) increased by 6% to 3.98 billion (estimate:3.93 billion).
• Advertising revenue rose by 23.8% to $38.7 billion (estimate: $37.8 billion or +20.9%) while Reality Labs revenue increased by 47% to $1.07 billion (estimate: $810 million or +11.5%)
• The company increased its share repurchase authorization by $50 billion and initiated a quarterly dividend of $0.50 per share.
• Meta is guiding Q1 2024 revenue of $34.5-37 billion (expectations: $33.61 billion), maintaining their earlier guidance of full-year 2024 total expenses ($94-99 billion) but increasing their 2024 capex guidance by $2 billion at the upper end to $30-37 billion on the anticipated increase in investments on servers and data centres.

Summary of the earnings call

Here is a summary of Meta Q4 2023 earnings call;

AI Products

• Meta's major goal is to build the most advanced and popular AI products. "And if we succeed, everyone who uses our services will have a world-class AI assistant to help get things done, every creator will have an AI that their community can engage with, every business will have an AI that their customers can interact with to buy goods and get support, and every developer will have a state-of-the-art open source model to build with, " CEO Mark Zuckerberg said in the earnings call.
• Zuckerberg said they have realized that they will need to build general intelligence unlike in the past when they thought they needed specific AI models.
• Zuckerberg said they learnt a great lesson when they underbuild Reels GPU and that they are not going to repeat the mistake.
• Zuckerberg expects the training and operation of AI models to be compute-intensive, "roughly 10x the amount of compute each year."
• Meta will continue to open source general infrastructure but keep specific products proprietary.
• Benefits of open source infrastructure include (1) safer, more secure and more efficient (2) It makes integration of newer innovations into their product easier once open sourcing becomes industry standard (3) Open sourcing is highly popular among developers and researchers, hence helping them recruit the best people.
• Meta is also working on long-term products such as Llama 5, 6, and 7.
• The company will leverage its huge number of users to train its AI products. "On Facebook and Instagram, there are hundreds of billions of publicly shared images and tens of billions of public videos, which we estimate is greater than the Common Crawl dataset and people share large numbers of public text posts in comments across our services as well," Zuckerberg said. But even more important than the upfront training corpus is the ability to establish the right feedback loops with hundreds of millions of people interacting with AI services across our products."
• Zuckerberg said they are rolling out Meta AI, AI Studio and Ray-Ban Meta smart glasses more widely in the coming months but monetization normally starts once they reach hundreds of millions or billions of people.
• In 2024, they will focus on launching Llama 3, expanding the usefulness of Meta AI Assistant and making progress on AI Studio.
• Zuckerberg said FAIR is focused on longer-term work while GenAI is focused on immediate work.
• Don't expect GenAI products to be a meaningful driver of revenue in 2024 (Q&A).
• Meta AI is at a phase where they are not pushing it super proactively (Q&A).

Advertising Business

• In Q4, the online commerce vertical "was the largest contributor to year-over-year growth, followed by CPG and gaming."
• In 2023, demand by advertisers in China reaching users in other markets was a strong driver to y/y growth of online commerce and gaming verticals.
• In 2023, China-based advertisers represented 10% of Meta's overall revenue and contributed 5% to the total worldwide revenue growth.
• In Q4 2023, Europe led in terms of ad revenue growth (33%), followed by Rest of World (32%), Asia Pacific (23%) and North America (19%).
• FX was a tailwind to ad revenue growth in all the international regions.
• In Q4, ad impressions grew by 21% driven by Asia-Pacific and Rest of World while the average price per ad increased by 2% " driven by advertiser demand and currency tailwinds, which were partially offset by strong impression growth, particularly from lower-monetizing surfaces and regions."
• Click to message ads seeing greater demand.
• Shop ads crossed a $2 billion annual run-rate in Q4.
• Li said they are getting strong feedback from advertisers on features such as Advantage+ Shopping, Advantage+ Catalog, Advantage+ Creative, Advantage+ Audiences, etc. They are also getting good feedback on tools that report on ad performance (Q&A).
• Concerning Shop ads, they partnered with Amazon to make purchases of products online. But the test is still in the early days (Q&A).
• Ad creative tools are their most near-term monetization opportunity eg Text Variations and Image Expansion (Q&A).

Q1 and Full-year 2024 Guidance

• CFO Susan Li said their Q1 guidance is based on strong advertising trends that they are seeing as well as accruing benefits from their ad performance investments. "On your second question, which is about the Q1 year-over-year -- sorry, the Q1 revenue guide. This really just reflects a lot of the trends we saw in Q4, which is strong, broad-based advertising demand across verticals, particularly within online commerce and gaming. I'll also note that we get the benefit from having February 29th in this quarter. And again, just the improvements that we continue to accrue to the business from all of our investments in improving ad performance over time," she said.
• Their increased capex guidance reflects their evolving understanding of how much AI infrastructure they may need. It is also an insurance on supply situation (Q&A).
• Li said 2024 revenue will be influenced by a number of factors including macro and lapping of strong periods. "But our revenue for the full year is going to be influenced by a number of factors, including macro conditions that are certainly harder to predict the further out you go. And over the course of 2024, as you said, we'll also be lapping periods of increasingly strong demand. So we don't provide guidance beyond Q1. There's certainly a range of outcomes, and we'll have a better read on how we will compare to future quarters as we progress through the year," she said (Q&A).

Share repurchases

• Expect to maintain an active share repurchase program but will start giving out dividends.
• Li said share repurchase will continue to be the primary way that they return capital to shareholders but dividends serve as a nice compliment to it. "We expect that share repurchases will continue to be the primary way that we return capital to shareholders. But introducing a dividend just gives us a more balanced capital return program and some added flexibility in how we return capital in the future," She said (Q&A).

Regulatory Environment

• FTC consent rule is currently the major risk. "The FTC is seeking to substantially modify our existing consent order and impose additional restrictions on our ability to operate. We are contesting this matter, but if we are unsuccessful it would have an adverse impact on our business," CFO Susan Lee said.

Meta Apps

• Reels are being reshared 3.5 billion times each day.
• Reels is now contributing to net revenue across Meta's apps.
• "The biggest opportunity 5 going forward is unifying our recommendations systems across Reels and other types of video. That will help people discover the best content across our systems no matter what format it’s in," Zuckerberg said.
• WhatsApp is succeeding more broadly in the United States; hence a huge opportunity given that the U.S. is an important contributor of revenue.
• Threads now has more than 130 million users.
• Meta will no longer report Facebook-specific metrics and will instead only report y/y changes in ad impressions, average price per ad at the regional level and Family daily active people.
• Family of Apps other revenue grew 82% in Q4 to $334 million, driven by the growth of business messaging revenue from the WhatsApp Business Platform.
• Daily watch time across Reels and overall video rose by 25% y/y in Q4, driven by ongoing ranking improvements.
• WhatsApp Channels now has 500 million active users since rolling out worlwide in September.

Apple Changes

• Apple changes won't have a difference to Meta. "I don't think that the Apple thing is going to have any difference for us because I think that the way that they've implemented it, I would be very surprised if any developer chose to go into the alternative app stores that they have," Zuckerberg said (Q&A).

Year of Efficiency

• The objective of their "year of efficiency" was to make them leaner and more balanced towards their engineering work and to improve their financial performance with the aim of providing stability as they invest in long-term goals.
• "Year of Efficiency" wasn't a short-term thing.
• They will hire again this year since they have a big recruiting backlog from last year. However,the new headcount to be hired will be minimal compared to what they have done historically.
• The other reason why the want to be lean is to prepare for unpredictable and volatile period in the next 5 years or 10. Be it regulatory, geopolitical and technological.

Metaverse

• Zuckerberg said they will continue investing heavily in Metaverse.
• Zuckerberg still believes in the Metaverse. "But I still expect this next generation of AR, MR, and VR computing platforms to deliver a realistic sense of presence that will be the foundation for the future of social experiences and almost every other category as well," he said.
• Horizon is now one of the top 10 most used apps in Quest.
• Its in-house developed game, Asgard's Wrath 2 received IGN’s 10/10 ‘masterpiece’ rating.
• Their focus in 2024 is growing their mobile version of Horizon and VR.
• Ray-Ban Meta smart glasses seeing high demand and engagement. Their engagement and retention are significantly higher than the first version.
• Mark thinks smart glasses with AI Assistant will be the killer app and then holograms and sense of presence will come later (Q&A).

Management Guidance and Analysts' Estimate

Management Guidance

Below is the management guidance for the fourth quarter-quarter and full year 2023 given during third-quarter earnings.

• Management expects an FX tailwind of about 2% to year-over-year total revenue growth in Q4.
• 2023 total expenses outlook includes around " $3.5 billion of restructuring costs related to facilities consolidation charges and severance and other personnel costs."
• Meta expects Reality Labs losses to increase year-over-year in 2023.
• Meta expects Q4 2023 and FY 2024 tax rates to be similar to Q3 2023.
• For 2024; management expects higher infrastructure-related costs, growth in payroll expenses, and Reality Labs operating losses to increase year-over-year.

Key Items	Q4 2023						2023						2024
	Lower-point	Y/Y Growth	Mid-Point	Y/Y Growth	Upper-point	Y/Y Growth	Lower-point	Y/Y Growth	Mid-Point	Y/Y Growth	Upper-point	Y/Y Growth	Lower-point	Mid-Point	Upper-point
Revenue	$36.5 billion	13.5%	$38.25 billion	18.9%	$40 billion	24.3%
Total expenses							$87 billion	-0.75%	$88 billion	0.4%	$89 billion	1.5%	$94 billion	$96.5 billion	$99 billion
Capex							$27 billion	-15.7%	$28 billion	-12.6%	$29 billion	-9.5%	$30 billion	$32.5 billion	$35 billion

Analysts' Estimates

Seeking Alpha

Key Items	Q4 2023	Y/Y Growth	Up Revisions	Down Revisions	Q1 2024	Y/Y Growth	FY24
Revenue	$39.09 billion	21.5%	23	14	$33.8 billion	18.0%	$151.0 billion
EPS	$4.99	183.6%	21	16	$3.67	66.6%	$17.63

Bloomberg

Key Items	Q4 2023	Y/Y Growth	Q1 2024	Y/Y Growth
Revenue	$39.07 billion	21.45%	$33.61 billion	17.34%
EPS	$4.90	178.7%	$3.57	62.29%
Advertising Revenue	$37.77 billion	20.85%	$32.94 billion	17.21%
Family of Apps Revenue	$38.09 billion	21.17%	$33.21 billion	17.34%
Reality Labs Revenue	$810.58 million	11.50%	$431.6 million	27.32%
Daily Active Users (DAUs)	2.067 billion	3.3%	2.090 billion	2.61%
Monthly Active Users (MAUs)	3.058 billion	3.18%	3.075 billion	2.86%

Competitor Earnings Expectations and Results

Alphabet

Analysts' Estimate

Here is what analysts expect.

Items	Q4 2023	Y/Y Growth
Revenue	$85.3 billion	12.1%
Advertising revenue	$65.9 billion	11.6%
EPS	$1.59	51.4%
Google Cloud revenue	$8.9 billion	22.1%

Analysts Opinions

The advertising market strengthened in Q4

• JMP Securities said their checks point to a healthy digital advertising market in Q4 2023, continuing to January 2024.
• “With the broader online advertising environment strengthening in 4Q, our Reels tracking suggesting 4Q ad load expanding (albeit at a slower pace), and our view that newer ad products are attracting greater demand,” Analyst Ronald Josey of Citi said. “Our Reels ad load tracking suggests ad loads expanded to 19.1% in 4Q, +20bps Q/Q, and with Reels likely becoming revenue accretive in 4Q, we believe monetisation efficiency through newer ad products and advertiser adoption is ramping,” he added.
• Truist said Meta's Q4 results would likely show solid growth in digital advertising, aided by the ongoing recovery in pricing. The analysts said conversations with digital advertising agencies indicate demand has been relatively consistent sequentially across social and search, helped by brand spend and e-commerce, with retail media maintaining its stong momentum.

• “Most experts he spoke to saw a significant acceleration in advertising revenue growth in the fourth quarter, with it significantly exceeding expectations towards the end of the quarter," Boerse reported on analyst Brent Thill of Jefferies's advice to its clients.
• RBC said advertising trends remain strong.
• Seaport expects solid ad growth for Meta in Q4.
• Evercore's Mark Mahaney said he's not worried about the demand environment. He said the demand environment is improving.

Advertising by Chinese businesses will likely continue into 2024

• "Expect marketing intensity by China x-border advertisers to sustain into '24, but see tailwind to Meta ad rev growth to meaningfully abate in the 2H driven by tough comps and ad spend diversification, " Wells Fargo analysts wrote.

Advantage+ trends remain positive

• Piper Sandler said their checks remain positive, especially for Advantage+.

Instagram and Facebook to see a rise in the share of digital advertising spend

• TD Cowen survey concluded core Facebook and Instagram share of digital advertising will rise, Reels has emerged as a leader in Short Form Video surpassing TikTok in advertiser preference, and Facebook is ranked number two in ROI.

Meta's ad products saw further growth in Q4

• KeyBanc believes Meta ended 2023 with further momentum in its ad products, especially Reels.
• “The solid topline growth comes amidst resilient consumer activity in several of Meta’s key markets,” Capital.com analysts wrote. “The multi-year decline in ad pricing is expected to slow down, with revenue growth coming despite what is projected to be only modest increases in daily active users and monthly active users of approximately 3%.”

FY 2024 is expected to be a good year for Meta

• "First, FY24 consensus revenue growth of 13% appears conservative against our expected 22% exit rate, considering drivers including improved monetization in Reels and FB Shops, and increased demand from Chinese e-commerce advertisers," Mizuho analysts said. "Lastly, we view Messaging as an attractive optionality, and we estimate WhatsApp could incrementally increase Meta’s revenue base by a third over time using AI to automate customer service," they added.
• Stifel analyst Mark Kelly said 2024 should be a good year for Meta particularly due to Apple changes that will make it easier for Meta to target users.

Impressive Q4 2023 Results

• Proactive Investors expects Q4 to have been Meta's revenue growth peak but thinks that it can overcome deceleration in 2024.
• “Bulls suggest 2024 revenue will beat estimates and deceleration is expected/priced in the multiple, while bears may prefer perceived acceleration stocks with easier comparisons, including Pinterest (NYSE:PINS) and Snapchat,” the BoA analysts wrote.
• Brian White, Monness Crespi Hardt analyst expects Meta to report an impressive fourth-quarter aided by AI innovations, secular digital trends and leaner cost structure. However, this year, he is worried about regulatory trends in Europe and U.S, cybersecurity attacks, and digital ad spending trends that could worsen as the economy slows.
• Mark Mahaney is forecasting Q4 revenue of $38.9 billion, 2% above the Street's model and monthly active users of 3.03 billion (+2%).

Year of Efficiency

• Evercore's Mark Mahaney expects Meta to maintain its full-year expense and capital expenditure guidance.

Reels now a tailwind to Meta's revenue

• "As of 3Q23, Reels is net revenue neutral, a quarter earlier than expected," Bernetein analysts wrote. "As RBernsteineels engagement hits exit velocity, Meta has shifted focus to monetization — a familiar playbook. Despite some structural challenges with short-form video, we believe Meta can increase ad load, improve conversion rates, and keep driving up engagement to the tune of ~$2B in incremental 2024 ad revenues, or 150-200bps of revenue growth."