Meta’s Mojo Returned As Surprise Earnings Fueled Big Tech Rally

Meta Platforms Inc (META.O) shares surged almost 28% on Thursday and helped trigger a rally in the technology sector after the Facebook owner baffled Wall Street by lowering its spending forecast and increasing its stock buyback plan by $40 billion.

The company was expected to add over $110 billion to its market value and was on course to record its best day in a decade. The rally also lifted shares of Apple (AAPL.O), Amazon.com (AMZN.O), and Alphabet (GOOGL.O), all of which sport valuations of over $1 trillion and will post earnings after market close.

Meta’s move on Wednesday to contain costs marked a significant shift for a company that has spent billions of dollars to make its vision of the futuristic metaverse into a reality, even while its core business stumbled from strong competition and a weak advertising market.

At least 24 analysts lifted their price targets on the stock after the results, with several saying that a combination of lower costs, share buybacks, and upbeat revenue growth will push up Meta’s earnings per share.

“That is rare,” analysts at Evercorse ISI said, pointing to the positive developments. “And stocks react to rare.”

The results also offered some relief to the market after an earnings crunch at Snap Inc (SNAP.N) on Tuesday that had driven tech shares lower.

“After Snap’s disaster, the fact that Meta wasn’t quite so bad has brought encouragement to tech mega-caps,” said Fiona Cincotta, analyst at City Index.

“There is also a less hawkish Fed (Federal Reserve), which is also boosting demand for growth and tech stocks generally.”

“Year Of Efficiency”

Meta now estimates its 2023 expenses between $89 billion and $95 billion, a significant drop from its previous outlook of $94 billion to $100 billion, with CEO Mark Zuckerberg referring to the period as a “Year of Efficiency”.

The forecast reflects savings from the 11,000 layoffs it disclosed in November, plans for reduced data-center construction expenses, and moves to abandon non-crucial projects.

“Promising that 2023 will be a year of efficiency was always likely to go down well with investors concerned about the largesse in spending directed towards the unproven potential of the metaverse,” said Russ Mould, investment director at AJ Bell.

There were also signs that Meta’s main social-media business was getting back on the rails, with monetization efficiency for short-form video Reels on Facebook doubling and the business being on course to break even as soon as end of this year.

The company, which projected first-quarter revenue above market expectations, also said that Facebook’s daily active user base expanded to 2 billion from 1.98 billion in the previous quarter.

“Meta is getting its mojo back,” analysts at Baird said.