Meta’s Stock Soars as Ninth Consecutive Monthly Gain Fuels Market Optimism
Meta’s stock continues to surge, closing out its ninth straight month of gains and marking the longest rally since the company’s initial public offering (IPO) in 2012. The social media giant, formerly known as Facebook, has seen a dramatic turnaround after experiencing a nosedive in 2022. Following better-than-expected second-quarter results and optimistic guidance, Meta’s shares reached their highest point since early 2022.
Driving the impressive rebound is a series of cost-cutting measures implemented by Meta, including approximately 21,000 job cuts. Additionally, the company’s online ad business has stabilized, contrasting with struggling rivals like Snap. Meta’s investments in artificial intelligence have also paid off, with more users engaging with products such as Reels and the debut of the Twitter competitor, Threads, generating investor optimism.
Meta CEO Mark Zuckerberg expressed confidence in Threads’ trajectory but emphasized that the company is not yet focused on monetizing the app. Analysts at Canaccord Genuity have a positive outlook on Meta’s ongoing turnaround, citing easing comparisons, AI-driven improvements, and nascent products as promising indicators.
Despite slipping slightly on Monday, Meta’s stock climbed 11% in July, bringing it within 17% of its record high from September 2021. The company ranks as the second-best performing stock in the S&P 500 this year, trailing only Nvidia. This year’s stellar performance comes after a challenging period, triggered partly by revelations from former Facebook employee Frances Haugen, which highlighted the company’s deficiencies in addressing various issues.
Meta faced additional obstacles, including the impact of Apple’s iOS privacy change, Russia’s blacklisting of Facebook and Instagram, economic uncertainties, and growing competition from TikTok. These factors, combined with concerns about excessive spending on metaverse initiatives, triggered a negative market sentiment.
However, Meta’s orchestrated cost-cutting efforts and Zuckerberg’s commitment to efficiency have paid off. The company redesigned its structure by removing layers of middle management and eliminating underperforming projects. As a result, Meta’s financials improved in the first quarter, posting a 3% sales growth. Positive signs, such as the increased use of the Reels service and retailers’ adoption of the AI-powered Advantage Plus program, indicate progress in restoring the effectiveness of Meta’s advertising system.
Although Meta’s stock surge has brought much optimism, challenges remain. The Reality Labs unit, focusing on metaverse investments, incurred substantial losses in 2022 and the first quarter of this year. Competition from Apple’s new VR headset, Amazon’s growing ad business, and potential regulatory woes for TikTok pose ongoing threats.
Moreover, Meta continues to face scrutiny from governments worldwide regarding data privacy and related issues. CFO Susan Li acknowledged the increasing legal and regulatory challenges that could significantly impact the company’s business and financial results, particularly in the European Union and the United States.
However, for now, Meta investors are celebrating the impressive stock rally, signaling a much brighter future compared to a year ago.