Meta’s share price has more than doubled this year. What’s driving the recovery?

What happened?

Meta’s share price has gone through a roller coaster ride in the past two years.

Its share price declined sharply in 2022 from $331 to $90, driven by slowing growth from its core business of Facebook and Instagram, as well as intense competition from TikTok. 

In addition, rising interest rates weighed on sentiment towards technology stocks. 

2023 has been proven to be a good year for Meta's shareholders, as its share price has rallied 168% year-to-date. 

Let us dive deeper to understand what is driving the recovery in Meta's share price.

What investors may like about Meta

#1 - Meta has been cutting cost aggressively

Many tech companies added more headcount during the Covid-19 pandemic when more users spent hours on social media for virtual interaction, shopping and entertainment. 

Since 4Q22, Meta has been reducing its headcount as part of its cost reduction programme. 

An estimated 21,000 employees have been made redundant as Meta seeks to be more efficient in its operations. 

Headcount in Meta is now down to 66,185 as of Sep 2023, which was a 24% decline year-on-year.

The headcount reduction impact has provided a lift to Meta’s financial results.

General & Administrative cost has fallen from 12% of sales in 3Q22 to 6% of sales in 3Q23.

Likewise, Marketing & Sales cost has declined from 14% of sales in 3Q22 to 8% of sales in 3Q23.

#2 - Fighting Back TikTok with Reels

Meta’s main segments Facebook and Instagram have been facing immense competitive pressure from TikTok.

TikTok has gained popularity globally with its short form video format and its live streaming functionality especially in the US market. 

In fact, TikTok is now the preferred social media app choice among the US younger consumers. 

The time that US young consumers spent on TikTok has also exceeded that for Facebook and Instagram. 

As Meta faces a threat to its survival, it has introduced its own short form video format - “Facebook Reels” and “Instagram Reels” to compete with TikTok. 

The introduction of “Reels” seems to have met with success as Meta has commented that engagement has increased for both Facebook and Instagram.

Meta’s active users has started growing once again in 2023 after slowing down in 2021.

#3 - Identified new revenue drivers within Facebook and Instagram

Meta has rolled out Meta Verified on Facebook and Instagram earlier this year. 

As such, you may have noticed more Facebook and Instagram users having blue check mark against their usernames.

This monthly subscription allows users to add a blue check mark for a monthly fee of $11.99/$14.99 for proactive impersonation protection and direct access to customer support. 

This is important for users, especially content creators and influencers who make a living online to establish a presence and building a community with a verified identity. 

Meta has not disclosed how many users have signed up for the Meta Verified subscription. 

A report by Bank of America research estimated 12m subscribers by 2024, contributing $1.7b revenue to Meta.

What would Beansprout do?

Meta’s share price saw significant pressure in 2022 as it faced intense competition from TikTok and rising costs from the increase in headcount during the Covid-19 pandemic. 

The company has since fixed these issues by reducing cost aggressively and rolling out new features and products to attract new and retain existing users.

This might be why the market has been positive on Meta’s stock. 

According to Webull, 87% of wall street analysts have a Strong Buy or a Buy rating on Meta’s current shares with an average price target of $372/share as of 22 November 2023. 

This would be 9% above its current share price of $341 as of 22 November 2023. 

Going forward, we will also be looking out for how Meta is able to find new monetization opportunities and grow its revenue through such products such as WhatsApp.

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