Meta: taking spending back to reality

Mark Zuckerberg has pushed hard to promote his vision of the metaverse. But the chief executive of Meta Platforms on Wednesday sounded more grounded. In a call with analysts following fourth-quarter results, Zuckerberg vowed 2023 will be the “Year of Efficiency”.

The company behind Facebook, Instagram and WhatsApp now plans to spend between $30bn and $33bn on capital expenditures in 2023. While that is still an increase on 2022, it is a meaningful cut from its previous forecasts of between $34bn and $37bn. He plans to control operating expenses, expected to be in the range of $89bn to $95bn.

Zuckerberg’s newfound passion for reining in costs is welcomed. The 20 per cent jump in Meta’s share price after-hours trading suggests as much. But investor hopes should remain realistic.

For starters, Zuckerberg has not abandoned his dreams of conquering the metaverse. Reality Labs, the division responsible for developing Meta’s virtual and augmented reality projects, remains a money pit. The unit made an operating loss of $13.7bn last year. The company said that will widen in 2023 but would “continue to invest meaningfully in this area”.

Meta’s shareholders could do with some savings. True, its shares have rallied more than a fifth since the start of January. But at just 16 times 2023 earnings, Meta has lost any earnings growth premium. That is well below the five-year average of 21 times.

The company’s core ad business has challenges. Competition from Amazon and TikTok, Apple’s privacy changes and a general slowdown in demand for digital advertising dragged overall revenue lower last year. Net income fell 41 per cent to $23.2bn as operating margin collapsed 15 percentage points to 25 per cent. Free cash flow more than halved to $18.4bn.

Efforts by Meta to lessen its dependence on third-party data for ad targeting are encouraging. Plans to buy back an additional $40bn in shares will help support the stock. But Zuckerberg still needs to rethink his spending on the metaverse and get Meta back to reality.

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