Meta reports Q4 earnings after market close today. Revenue was $32.17 billion vs $31.53 billion expected. EPS was $1.76 vs. $2.26 expected. ARPU was $10.86 vs $10.63 expected. Overall, the result was OK. Revenue was down 4% YoY but it wasn’t catastrophic although ad impression increased by 23% year-over-year and CPM decreased by 22% year-over-year. Basically, they increased the ad impressions per user to offset the ad price drop. I suppose they still have lots and lots of ad inventory they can serve on Messenger, Whatsapp and Reels. Chances are they can manage revenue this way in the next few quarters. But investors are primarily concerned about expenses at the moment any way. In that regard, Reality Labs lost another $4.28B in Q4 while their Q4 revenue actually went down YoY. Reality Labs can really use some efficiency there.
After the earnings report, Zuck declared that 2023 is the “Year of Efficiency” for Meta in a facebook post. META 0.00 stock jumped more than $20+ as investors breathed a sigh of relief. In the post, he said the following I found very interesting:
Before getting into our product priorities, I want to discuss my management theme for 2023, which is the "year of efficiency". We closed last year with some difficult layoffs and restructuring some teams. When we did this, I said clearly that this was the beginning of our focus on efficiency and not the end. Since then, we've taken some additional steps like working with our infrastructure team on how to deliver our roadmap while spending less on capex. Next, we're working on flattening our org structure and removing some layers of middle management to make decisions faster, as well as deploying AI tools to help our engineers be more productive. As part of this, we're going to be more proactive about cutting projects that aren't performing or may no longer be as crucial, but my main focus is on increasing the efficiency of how we execute our top priorities.
I am glad Zuck acknowledged that Meta has an efficiency problem. What I heard through my Facebook network is that Meta’s organizational issue is beyond the deep layers of org structure. There seems to be a lot of bloat in general so removing layers of managers and turning them into individual contributors or asking them to leave seems to be a good start. But I believe they also need to have a culture of value creation, which AFAIK has not been practiced ever since the company became big and successful. What is the culture of value creation? I am a startup entrepreneur so I do this a lot. Basically, I would like the productivity-to-team-size to remain constant or higher as the team grows . If I hire someone and after a couple of months, that person doesn’t increase the overall output for whatever reasons, then that person will be let go. Sometimes it’s not even that person’s fault. I can hire a rockstar but if I don’t have the right setup for the rockstar to perform due to timing or context, they may not be able to create sufficient value for the company. Anyhow, every person has to be a net value creator. Namely, the value created by this person far exceeds their compensation. I know I sound like slave driving Elon Musk but if you want efficiency and a high performing team, that’s what you gotta do. I don’t think this value assessment is easy to do at very large organizations like Meta though. Plus, for large organizations, innovations usually require experimentation and a little bit of inefficiency to take hold. But it can go unwieldy if it’s not done in a controlled and disciplined fashion. For Meta, it appears the org problem is easy to diagnose but very very hard to solve. I am looking forward to seeing how Meta executes their year of efficiency at scale and still has focus and discipline on their area of innovations.