Meta Free Cash Surge Clears The Way For More Metaverse Investment

Meta Platform’s shares soared in Wednesday post-market trading as the social-media giant outperformed Q4 expectations. Free cash flow and an increasing number of users across Meta’s apps were just what investors needed to justify heft Reality Labs expenditure.

The stock traded as high as $180 after closing the regular session at $153.12 and has now doubled since it cratered after the company revealed dismal results in the previous quarter.

The company’s Q4 revenue was $32.2 billion, higher than the $31.5 billion expected on Wall Street, though still down 4% from last year. Earnings-per-share (EPS), however, underperformed expectations of $2.26, coming in at $1.76, 52% less than a year earlier. The company attributed the poor showing to restructuring costs that included layoffs and said without those charges EPS would have been $3.00.

But the key figure investors were looking at, according to Mark Shmulik, managing director and senior analyst of U.S. internet at investment manager and researcher AllianceBernstein, was free cash flow.

Free cash–money that can be used to reinvest in the business or pay for dividends and stock buybacks – was $5.3 billion, significantly more than the $1.5 billion expected, but still down a staggering 58% from 2021.

Meta’s Reality Labs division, home to the Horizon World metaverse, did slightly better than expected, with an operating loss of $4.3 billion instead of the expected $4.4 billion. This brought the division’s shortfall for the year to $13.7 billion, 34% wider than last year.

With support from better-than-expected performance across the family of apps, including Facebook breaking into 2 billion daily active users for the first time, the results are likely to limit investor objections to the company’s spending on developing its metaverse.

“Our community continues to grow and I’m pleased with the strong engagement across our apps. Facebook just reached the milestone of 2 billion daily actives,” Mark Zuckerberg, Meta founder and CEO, said in a statement. Zuckerberg added that short-form videos (including Reels), an area in which TikTok has taken market share, doubled from last year.

Reality Labs, however, is still expected to remain unprofitable this year, according to Chief Financial Officer Susan Li. “We’re continuing investment in the Reality Labs segment” she said on a conference call to discuss the latest earnings.

Zuckerberg announced that Meta will release its third generation VR headset this year, expanding its virtual- and mixed-reality offerings. The “future operating platforms for the metaverse” will be a key focus, Zuckerberg said during the company’s earnings call.

“Most people will experience the metaverse on phones,” he added.