After the last downturn, it has rebounded by 100%. What surprises will Meta bring this time?

Tech giant Meta announced its latest financial report for 2022, with fourth-quarter revenue exceeding expectations and the announcement of a share buyback, causing the stock to surge nearly 20% after hours to $182.75, doubling from its low point in November last year.

Key revenue sources for Meta: Advertising revenue rebounded from the previous three quarters, reaching $31.2 billion in the fourth quarter, a 4% decrease year-over-year. Despite the increase in advertising revenue, the operating margin declined to 20%, leading to fourth-quarter EPS dropping to $1.76, with full-year EPS at $8.58.

Meta has lowered its forecast for full-year expenditures in 2023, expecting expenses to range between $89 billion and $95 billion, lower than the previous expectation of $94 billion to $100 billion. Meta announced a workforce reduction of 11,000 employees just last November. Meta's founder and CEO Mark Zuckerberg also mentioned in a conference call that they are working to flatten the organizational structure, remove some middle management layers to make faster decisions, and deploy AI tools to help engineers improve efficiency.

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Reality Labs

Reality Labs, the metaverse project that has attracted widespread attention, continues to incur losses. Reality Labs' mission is to lead the company into the metaverse through the development of virtual reality and augmented reality technologies.

Meta's founder and CEO Mark Zuckerberg remains steadfast in his commitment to the metaverse, despite facing criticism from major shareholders and the public. He insists on making significant investments in this project, stating that his ambitious vision may result in Reality Labs incurring over $10 billion in losses annually for several years.

As shown in the chart below, Reality Labs' losses continue to widen, reaching a total loss of $13.7 billion for the full year of 2022.

The Reason for the Surge is the Buyback of Treasury Shares

According to a report by CNBC, Meta plans to increase its investments in its own stock. Previously, the Meta board approved a $40 billion increase in the repurchase of treasury shares, of which $27.9 billion was executed in 2022, leaving $11.1 billion remaining.

Treasury stock buyback refers to the financial practice where a company uses cash on hand to repurchase its own shares, which are then held in the company's treasury. These repurchased shares cannot be traded publicly, hence the term "treasury stock." This is a common financial practice in the U.S. stock market, where companies repurchase their own shares to boost stock prices, allowing shareholders to benefit from capital gains and is a common policy among most U.S. companies to reward their shareholders.