Text|Read finance and economics.Although the U.S. market fluctuates greatly, it is also rare for a case like Meta to have a huge fluctuation in market value in just two years. From August 30, 2021 to November 2022, Meta shares** exceeded 76%. But after that, Meta's stock price rose 5 times in just over a year.
In particular, on February 2, Meta shares soared by 203%, an increase of $204.5 billion overnight, setting a record for the single-day market value increase of U.S. stocks. The stock price soared without Meta's New Year's gift package: the first dividend ($0.).5 shares), plus $50 billion in buybacks. However, the reversal of the advertising business is the basic market for the stock price to skyrocket.
In the fourth quarter, the unit price of Meta advertising returned to positive growth for the first time in six quarters. After the rise in volume and price, Meta advertising has accelerated, and it is expected to achieve revenue in the first quarter of 2024 in the range of 34.537 billion, exceeding market expectations of 33.6 billion. So how did the meta advertising business flip around?
This article holds the following views:
1. Meta overcame the impact of Apple's privacy policy. After the release of Apple's privacy policy, Meta could not use user data to push ads, resulting in a significant reduction in efficiency. But now, Meta uses AI to analyze users' interests and behaviors, and then accurately target advertisers. According to Meta, using one of its AI tools can increase the return on ad spend by 32%.
2. TikTok's impact on Meta is not as expected. TikTok ads have a conversion rate of 07% 3% and 9% for Facebook21%。Nearly half of TikTok's users are 13-24 years old, and their spending power is weak. And TikTok has not broken the circle, reaching 1After 700 million, TikTok has slowed down significantly, and it is more than 2 percent away from Facebook in North AmericaThere is still a long way to go for 500 million users.
3. Meta is about to usher in a new round of investment period. After spending 2023 on the efficiency of reducing costs and increasing efficiency, Meta has once again raised its 2024 capital expenditure guidance, focusing on the metaverse and AI. Metaverse losses are still expanding, and new investments in AIGC will have a greater impact on Meta's future profits.
01 From a shrinkage of 7% to a skyrocketing of 5 times A year ago, Meta seemed to be left behind, no matter from the perspective of market capitalization or performance, Meta is no longer suitable to be compared with Apple, Alphabet (Google), Amazon and other American technology giants.
At that time, Meta's business was in a shaky predicament: the problem of lackluster revenue growth had lasted for three quarters; High costs led to a sharp decline in operating profit. The sluggish business has also affected the stock price, with Meta's share price exceeding 76% from August 2021 to November 2022, and its total market capitalization reaching $230 billion, the lowest level since 2016.
But in the past year, Meta has made a beautiful comeback. Since the November 2022 low, Meta shares have skyrocketed 5 times. In particular, on February 2, Meta gave shareholders a New Year's gift package (the first dividend ($0.).5 shares), plus $50 billion in buybacks), and shares soared 203%, an increase of $204.5 billion overnight, and the market value came to 1An all-time high of $211 trillion.
However, the repurchase + dividend payout is just the icing on the cake, and the fundamentals that support Meta's record high are still the performance that has exceeded expectations for many consecutive quarters. Taking the past four quarters as an example, although investment banks have significantly raised Meta's revenue expectations in the second half of 2023, the final results are still a cut higher. The just-announced fourth-quarter results show that Meta's revenue achieved 401100 million US dollars, a year-on-year increase of 247%。The market expectation was 390800 million US dollars, with a growth rate of 215%。
Net profit was even more explosive, with Meta's net profit in the fourth quarter increasing 201% year-on-year to 140$1.7 billion, has exceeded market expectations for three consecutive quarters, and for two consecutive quarters, a new high in profits.
Meta's performance reversal is the result of a combination of internal and external factors. In terms of external factors, the U.S. economy has shown resilience, and advertiser spending has been relatively strong. In addition, the overseas demand of Chinese Internet companies has brought a large amount of new advertising spending, which has also contributed to Meta's reversal. According to the Q4 2022** conference, advertisers from China accounted for 10% of the revenue.
After the external environment trended better, Meta itself was not idle, and after several vigorous layoffs, Meta reduced a total of about 20,000 employees, and successfully reduced spending on manpower and welfare. This also led to an increase in profit margins, and the operating profit margin of APP services (advertising) continued to increase by more than 2 points month-on-month, reaching 54%, which is almost a historical peak.
Uncontrollable external environment and unsustainable layoffs alone are clearly not enough to support Meta's long-term reversal. What really got Meta out of the predicament was the changes in the advertising business itself.
02 Advertising ushers in the second springMeta's advertising revenue formula can be simplified as: ad impressions and ad unit price.
Over the past few quarters, the reversal of Meta's advertising business has largely relied on the growth of ad impressions. From the second quarter of 2022, Meta's ad impressions have increased by more than 15% year-on-year. In the fourth quarter of 2023, Meta's advertising unit price increased by 2% year-on-year, achieving positive year-on-year growth for the first time in six quarters.
Among them, the growth of ad impressions is affected by various factors such as ad load rate, number of DAUs, user duration, etc. The advertising unit price is mainly affected by platform competition. In the past period, due to the decline in advertising effect, short-term competition and other factors, the unit price of Meta advertising has continued to decline.
But recently, Meta's above problems have been solved to a certain extent. First of all, after Apple tightened the IDFA (Advertising Prompt), Meta was unable to push ads with user privacy data, resulting in reduced advertising efficiency.
But now Meta has solved this problem with technology. Meta can use AI to analyze users' interests and behaviors, and then accurately target advertisers. According to Meta statistics, using its AI-powered advanced enabling smart shopping ads can increase the return on ad spend by 32%.
After the advertising effect recovered, TikTok's competition for Meta also fell short of expectations. In terms of the conversion rate that advertisers value the most, the official data given by TikTok is 07% to 3%, while Facebook's average ad conversion rate can reach 921%。The huge gap in advertising conversion rate also gives Meta a larger room to raise prices in the face of competition.
The low conversion rate of ads is due to the low user value of TikTok, which is very much like "toys for white kids". According to the Yuanchuan Research Institute, until 2022, nearly half of TikTok's users in the world are still between the ages of 13-24. Young age means low spending, and advertisers are naturally reluctant to pay for advertising.
At present, TikTok has not broken the circle, and the number of users in the United States has reached 1After 700 million, TikTok began to slow down significantly. According to Evercore data, daily TikTok usage in the third quarter of 2023 decreased by 4% year-on-year. At this time, TikTok is more than 2 miles away from Facebook North AmericaThere is still a gap between the 500 million users.
In contrast, Meta's social app is more like a national app, and has a clear conversion rate advantage, and the advertiser's first choice for social platforms is still Meta. This is also the biggest confidence of meta advertising.
After the resumption of the "volume and price increase", Meta's advertising business began to accelerate growth. Meta released revenue guidance for the first quarter of 2024, and it is expected that its total revenue in the first quarter will be in the range of 34.537 billion, with a corresponding change of 20% and 29% year-on-year, exceeding market expectations of 33.6 billion.
Although the advertising business is back, Meta's other business lines also face many challenges.
03 Meta ushered in a new round of investment in 2023, which was called the efficiency year of Meta by Zuckerberg, in which the company reduced costs and increased efficiency, reduced investment, and achieved new highs in revenue and profits.
But starting in 2024, Meta will enter a new round of investment. In the fourth quarter, Meta raised its 2024 capital expenditure guidance from a range of $30 billion to $35 billion to $30 billion to $37 billion. For the whole of 2023, Meta's capital expenditure is only $28.1 billion.
It's clear where the capital expenditure is spent, and it's Meta's long-awaited metaverse business and the AIGC that tech giants won't miss.
Specifically, Meta has been stingy with its investment in the Metaverse, even in 2023, when costs are reduced and efficiency increased, Meta Metaverse still expands its losses, and its operating loss in 2023 will increase by 42$800 million increased to $46$500 million. Meta expects the division's operating loss to still increase "significantly" in 2024.
The metaverse is a new form that is visible to the naked eye and has the potential to replace the current social needs. In order to avoid being wiped out by technological iterations, Meta must take the lead in exploring the next generation of social forms. But the problem is that the metaverse and XR fields have always been tepid, and they have neither lacked a rich content ecology nor ever given birth to a killer "hardware". In the case that the demand is not opened, the long-term loss of Meta's metaverse business is a high probability event.
The ethereal metaverse cannot be abandoned, and the opportunity of AIGC cannot be missed. Meta is also aiming at the field of large models that technology giants must compete for, and its llama2 has become the most advanced open source large model in the world (this is also the technology of most domestic A-share companies' "self-developed large models").
In order to train and run large models, Meta will "need more computing resources" to train models in the future. This also requires Meta to increase investment in improving computing power. According to Zuckerberg, Meta will deploy more than 350,000 NVIDIA H100 blocks by the end of 2024 to train large models. The price of the H100 is set at 2Between $50,000 and $30,000, even according to 2$50,000, Meta will still pay about 87 for 350,000 H100$500 million in expenditures.
And when all tech giants are concentrating on the "R&D focus" of AI, Meta Metaverse and AI have to do the posture, and when the advertising business is strong, investors are more tolerant of its two-front operations. However, once the advertising business encounters unfavorable conditions, the two-front operation will also increase Meta's uncertainty. From this point of view, the strength of the advertising business will become a barometer for Meta.