Meta's first-quarter win shows Zuckerberg is serious about cutting costs

Published Wed, Apr 26 20238:13 PM EDT

Meta Platforms (META) reported stellar first-quarter results on Wednesday, in the latest sign CEO Mark Zuckerberg's "year of efficiency" is translating into tangible financial progress for the Club name. Revenue climbed 2.6% year-over-year, to $28.65 billion, beating analysts' expectations for $27.66 billion, according to estimates compiled by Refinitiv. Earnings-per-share (EPS) fell 19% on an annual basis, to $2.20, however, but outpaced analysts' forecasts of $2.03 a share. Notably, if not for $1.14 billion in one-time restructuring costs during the quarter, EPS would have been 44 cents per share higher and Meta's operating margin would have been four percentage points higher. Meta stock soared in afterhours trading by more than 11.5%, to around $233.70 a share. Bottom line The efficiency gains that Meta achieved in the first quarter are clearly not impacting user engagement across its social-media platforms like Instagram and Facebook. Management appears to be adeptly balancing cost-optimization initiatives with artificial intelligence (AI) investments , driving better engagement than ever before. Meta's virtual-and-augmented reality unit, known as Reality Labs, underperformed, but we aren't concerned because it's not a significant driver sales in the near term, nor taking a substantive toll on profitability. More fundamentally, Meta has returned to growth a full quarter ahead of expectations, its Reels short-form video offering is seeing strong traction, AI investments are clearly paying off and management is as committed as ever to running a leaner and more efficient operation. As a result, we are raising our price target on Meta stock to $250 per share, from $220. However, we're maintaining a 2 rating on the stock, as we look for a better price point to upgrade. Outlook Meta said it expects second-quarter 2023 revenues to be in the range of $29.5 billion to $32 billion. Even at the low end, this forecast is ahead of the $29.45 billion predicted by Wall Street analysts. At the same time, Meta again revised its full-year expenses outlook lower after already reducing the outlook for spending just last month. The company now expects full-year 2023 expenses to be in the range of $86 billion to $90 billion, a haircut at the high end from the $86 billion to $92 billion range provided in March. This updated range includes $3 billion to $5 billion of restructuring costs related to facilities-consolidation charges, severance and other personnel costs — one time charges that highlight the company's efforts to become more efficient. Meta reiterated its 2023 capital expenditures outlook to be in the range of $30 billion to $33 billion, in line with expectations at the midpoint. In addition to increasing Meta's capacity for generative AI initiatives, these expenditures will be geared toward the "ongoing build out of AI capacity to support ads, Feed and Reels," according to the company. Meta is "no longer behind in building out [its] AI infrastructure and to the contrary, [the company] now [has] the capacity to do leading work in this space at scale," Zuckerberg said Wednesday. First-quarter commentary Over 3 billion people now use one of the company's apps every day, Zuckerberg said at the start of Meta's post-earnings conference call Wednesday. He then switched gears, noting that as a result of the company's newfound financial discipline, Meta is operating from a position of strength and better able to "weather a volatile environment, while remaining focused on our longer term priorities." But the work is not done, and management intends to next month begin the third and final stage Meta's restructuring-and-layoff strategy. Once that last stage is executed, the work environment should become much more stable, Zuckerberg commented. Meta in March announced 10,000 job cuts , on top of 11,000 layoffs from late last year. Meanwhile, rapid engagement growth for the Reels offering on Facebook and Instagram continues apace, with users now sharing the videos over 2 billion-times per day. That's double the level seen just six months ago, according to the company, helping Meta to gain share in the short-form video market, which has been dominated by rival TikTok. AI investments are reaping benefits across Meta's entire suite of products. Over 20% of content on Facebook and Instagram feeds is now recommended by AI from accounts that users don't follow, the company said, aiding in discovery and engagement. Moreover, management added that "AI recommendations have driven a more than 24% increase in time spent on Instagram." At the same time, Zuckerberg dismissed the notion that he has given up on the metaverse. The CEO provided very measured comments explaining how investments in AI and the metaverse are deeply intertwined. "Mixed reality is built on a stack of AI technologies for understanding the physical world and blending it with digital objects," Zuckerberg said. "Being able to procedurally generate worlds will be important for delivering compelling experiences at scale. And our vision for [augmented reality] glasses involves an AI-centric operating system that we think will be the basis for the next generation of computing," he added. This is the correct approach, allowing management to invest in the here-and-now in ways that will increase both efficiencies and profits, while ensuring the company remains at the cutting edge of new computing technologies. Lastly, Meta said it repurchased $9.22 billion worth of shares during the first quarter. As of the end of the quarter, the company had $41.73 billion remaining under the current share repurchase authorization. (Jim Cramer's Charitable Trust is long META. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Meta CEO Mark Zuckerberg demonstrates an Oculus Rift virtual reality (VR) headset and Oculus Touch controllers during the Oculus Connect 3 event in San Jose, California, U.S., on Thursday, Oct. 6, 2016.

David Paul Morris | Bloomberg | Getty Images