Meta downgraded at HSBC following 4Q miss; announces 2023 as 'year of efficiency'

HSBC Global Research downgraded Meta Platforms (NASDAQ: META) to a Reduce rating (From Hold), and reiterated a price target of $110.00, following the social media company’s 4Q results. Meta reported 4Q EPS of $1.76, missing the consensus estimate of $2.20.

The results showed higher users and growing engagement, but a 4.5% revenue decrease and a large restructuring charge of $4.2bn, only partially offset by lower depreciation. 2022 marks the first year of declining revenue at Meta.

Facebook daily users were up 3.7% yoy in Q4 22 to 2bn, growing in line with the first 9 months; monthly users are also up 1.8% and the engagement rate at 67.5% is higher than a year ago (66.2%).

Analyst Nicolas Cote-Colisson wrote in a note, “Meta’s addressable market (global advertising spend) is highly correlated to GDP growth. In recent quarters, a variety of factors have put pressure on growth forecasts. These include global geopolitical tension, a high interest rate environment triggered by inflationary pressures, and lower consumer demand. Based on HSBC economists’ views, we calculate that Meta’s weighted footprint will grow slower than the global economy in 2023 and in 2024. We expect Meta’s market share (it derives c98% of its revenues from ad placements on its platforms) to remain fairly constant at c19% for the next few years.”

Meta management has indicated that 2023 will be a “year of efficiency” and reduced its total spend guidance for 2023 by $5bn ($4bn adjusted for restructuring), and capex by another $4bn, while extending the buy-back authorization to $40bn after achieving $6.9bn in 2022.

Meta has already booked restructuring charges of $4.2bn in Q4, made up of $1.9bn of costs related to facilities consolidation and data center rationalization for $1.34bn. Labor cost restructuring was $975m, with the 11k employees laid off to leave the company in Q1 2023. For 2023, Meta expects $1bn of further restructuring costs, but warns that it “may incur additional restructuring charges as we progress further in our efficiency efforts”

Shares of META are up 23.28% in pre-market trading on Friday.

By Michael Elkins | [email protected]

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