Meta Back In Favour & Fed's Almost Done

The year of efficiency. Those were Mark Zuckerberg’s words to describe the year ahead, at least from Meta’s perspective. If markets were still concerned about the company’s willingness to cut costs, the CEO certainly calmed some nerves. The share price rallied 20% after hours.

Meta announced a monster $40bn share buyback plan too. That might have helped sentiment somewhat. Either way, those two things captured the market's attention. As Orson Welles said: “Don't give them what you think they want. Give them what they never thought was possible.”

Restructuring details were laid out in the press release:

“During the quarter ended December 31, 2022, we took several measures to pursue greater efficiency and to realign our business and strategic priorities. This includes a facilities consolidation strategy to sublease, early terminate, or abandon several office buildings under operating leases, a layoff of approximately 11,000 of our employees across the FoA and RL segments, and a pivot towards a next generation data center design, including cancellation of multiple data center projects.”

Changes which lead the firm to expect lower expenses than previously forecast for the coming year.

“We anticipate our full-year 2023 total expenses will be in the range of $89-95 billion, lowered from our prior outlook of $94-100 billion due to slower anticipated growth in payroll expenses and cost of revenue.”

The social media giant has acted quickly to cut expenditures. Can the recent decline in profitability reverse and rise back towards the prior (higher) baseline?

CEO Zuckerberg summarised:

“Our community continues to grow and I’m pleased with the strong engagement across our apps. Our management theme for 2023 is the ‘Year of Efficiency’ and we’re focused on becoming a stronger and more nimble organization.”

The jury’s still out on whether the company can achieve that efficiency. For now though, revenues are up, costs are coming down and the outlook’s brighter than it was just a quarter ago.

However, there’s still a looming problem to navigate. A resilient economy. Usually this would be an amazing (non) problem to have, but central banks are still concerned about inflation and a strong economy could stoke those inflationary pressures once again.

The Federal Reserve hiked rates by 0.25% last night, as expected. Fed chair Powell sees further rate increases as necessary, likely for another meeting or possibly two:

“We’re talking about a couple of more rate hikes to get to that level we think is appropriately restrictive”

He struck a positive tone in the press conference, further fuelling hopes of a soft landing for the US economy. Fears that the Fed would remain dogged and ‘overtighten’ in their approach were allayed by Powell’s comments. They’ll be guided by the data.

Recently, that’s been going their way as inflation, wage growth, and manufacturing activity have all noticeably slowed. Powell says it’s too soon to declare victory, and implied that rate cuts later in the year are far from guaranteed:

“Certainty is just not appropriate here. I’m not going to try to persuade people to have a different forecast, but our forecast is that it will take some time and some patience, and that we’ll need to keep rates higher for longer.”

For now at least, markets seem to be happy to go along with the soft landing narrative. Whether that lasts is another matter altogether.