Meta shares jump after first-ever dividend plan, ‘Year of Efficiency’ pays off

CALIFORNIA (Reuters): Meta surged 17% in premarket trading on Friday as the Facebook parent’s first dividend declaration and robust results increased expectations of strong returns from its investments in “metaverse” technologies and artificial intelligence infrastructure.

Days ahead of Facebook’s 20th anniversary, Meta (META.O), opens new tab authorized an additional $50 billion in share repurchases and said its quarterly dividend would be 50 cents per share.

The dividend would not change the total amount of capital returned and introducing a dividend gives the company more “flexibility,” Meta CFO Susan Li said.

The new dividend plan would also mean a hefty payout for CEO Mark Zuckerberg, who owns about 350 million Meta Class A and Class B shares. The Facebook co-founder could get about $175 million every quarter.

“The returning of cash to shareholders is a bold and well-regarded move. The amount of free cash pumping through the business means it is more than able to afford it, and it helps pay investors for their patience,” Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said.

Meta on Thursday flagged strong ad sales and a rebound in user growth during its fourth-quarter results, while the social media giant also forecast current-quarter revenue above analysts’ estimates.

The company has been working at keeping costs low during the last year, and let go of more than 21,000 employees since late 2022, with Zuckerberg calling 2023 the “Year of Efficiency”.

“We are impressed with strong results/guidance and overall resiliency of Meta’s advertising platform given macro wobbles, although this reflects the meaningful investments in platform engineering and product development,” Baird analyst Colin Sebastian said.

The world’s biggest social media company has been spending billions of dollars over the past decade to boost its computing capacity for generative AI products it is adding to Facebook, Instagram and WhatsApp, and to hardware devices such as its Ray-Ban smart glasses.

Meta’s shares trade at 21.29 times expected earnings, compared with a forward PE of 83.85 for social media rival Snap (SNAP.N), opens new tab, 20.38 for Alphabet (GOOGL.O), opens new tab, 40.51 for Amazon.com (AMZN.O), opens new tab and 31.57 for Microsoft (MSFT.O), opens new tab, according to LSEG data.

Meta is the fourth from the so-called “Magnificent Seven” stocks to pay a dividend, with its yield of 0.51% matching that of Apple (AAPL.O), opens new tab.

Meta was on track to gain $171 billion in market value, based on a premarket share price of $461.30, if gains hold.

“The ‘Year of Efficiency’ has paid off, with both headcount and costs dropping, and Meta exceeding our expectations for full-year 2023 ad revenue,” Jasmine Enberg, principal analyst at Insider Intelligence, said.