AI will drive the next chapter of Meta’s story, fund managers suggest.
It is exactly 20 years since Facebook was launched on 4 February 2004 as a fledgling social media app, created by a geeky genius beavering away in his Harvard University dorm room. Since then both Mark Zuckerberg and his brainchild have grown up.
The 39-year-old billionaire now presides over a tech behemoth at the forefront of the artificial intelligence (AI) revolution, whose market capitalisation recently passed the $1trn threshold.
In a sure sign that Meta Platforms has come of age, the company announced yesterday that it would start paying a quarterly dividend to shareholders, with the first payout of 50 cents a share coming on 26 March 2024. Meta also pledged to buy back $50bn of its shares.
Meta’s share price soared 15% in after-hours trading as investors welcomed this news and reacted to higher than expected profits and revenues in Meta’s 2023 results.
Storm Uru, co-head of the Liontrust global innovation team, said that Meta is “the first technology company in the new cycle to initiate a dividend – opening up the company to new investors.”
A further shareholder-friendly development was the 22% reduction in Meta’s headcount last year. This means the company will be more efficiently run, which should feed through into higher earnings, said Stephen Yiu, manager of the Blue Whale Growth fund.
“Investors are being reassured that Meta is on track to deliver what we expect them to,” said Yiu, who invested in Meta during the fourth quarter of last year and quickly built his position into a top 10 holding.
On the expenditure side of the balance sheet, Meta is investing heavily in AI research and product development, which Yiu expects to pay off in the medium term.
Meta will need to prove that its AI expenditure is delivering results, such as higher conversion rates from personalised advertising, which would enable it to charge advertisers more.
William Warren, co-manager of the Artemis US Extended Alpha fund, shares Yiu’s conviction in Meta, making it the third-largest holding in his portfolio.
He thinks Meta’s leadership in AI is “underestimated”, even though “it has one of the most advanced and scalable supercomputers ever built”.
Warren admires Meta’s “willingness to invest substantially in areas outside of its core business” and said this is “one of the reasons we remain confident it can continue to grow and see off the threats posed by competitors”.
Meta’s management team “still has a start-up mindset, with a focus on capturing the long-term opportunity set over maximising near-term profits,” he added.
Uru has also been impressed by Meta’s early and rapid adoption of AI, which is contributing to top line growth and greater user engagement, as well as improved productivity and lower costs.
“Already AI assistants are available for creators and advertisers to collapse the cost of content generation and cost of customer acquisition, driving better outcomes for Meta’s customers,” he said. “Innovating at scale is not easy and Meta have shown once again why they should not be underestimated.”
Meta is spending an estimated $10.5bn on NVIDIA computer chips to build “a next-generation AI that possess human-like intelligence”, Uru added.
The Scottish Mortgage investment trust recently invested in Meta, banking on its potential to grow advertising revenue.
Portfolio director Claire Shaw said: “The reach of the ‘family of four’ (Facebook Blue, Instagram, Messenger and WhatsApp) makes it an advertiser’s dream, given that these platforms touch 70% of the connected population outside China.”
WhatsApp and Messenger have historically been under-monetised but could turn a profit if they start using personalised advertising.
“We think utilising AI on these platforms will improve advertising opportunities and facilitate better monetisation through increased user connections. For example, sending people who click on ads directly into conversations with businesses in Messenger,” Shaw said.
Yiu agreed. He has more conviction in Meta’s strategy now compared to a couple of years ago because Zuckerberg has changed his focus to AI from the metaverse. Capital expenditure in the metaverse could take a decade or two to pay off. “With AI you’re seeing the value add much quicker. It’s basically enhancing what they’re doing already,” he explained.
Investments in generative AI and algorithms for personalised advertising are “more tangible and more timely”, Yiu continued. “The payback period is much shorter than the metaverse.”
