Meta surged more than 17% on Friday as the Facebook parent's first dividend declaration and robust results increased expectations of strong returns from its investments in "metaverse" technologies and artificial intelligence infrastructure.
Days ahead of Facebook's 20th anniversary, Meta (META.O) authorized an additional $50 billion in share repurchases and said its quarterly dividend would be 50 cents per share.
The social media giant is the first of its generation of internet juggernauts to issue a dividend, and the fourth from the so-called "Magnificent Seven" stocks, with its yield of 0.51% matching that of Apple (AAPL.O), according to LSEG data.
"The returning of cash to shareholders is a bold and well-regarded move. The amount of free cash pumping through the business means it is more than able to afford it, and it helps pay investors for their patience," Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said.
The new dividend plan would also mean a hefty payout for CEO Mark Zuckerberg, who owns about 350 million Meta Class A and Class B shares. The Facebook co-founder could get about $175 million every quarter.
"Meta's strategy of announcing buybacks and dividends right before the Fed begins to cut rates is a brilliant move. As the battle for innovation grows ... in the Big Tech space, investors will see any extra capital as dry powder for future earnings growth," said Thomas Monteiro, analyst at Investing.com.
The company flagged strong ad sales and a rebound in user growth during its fourth-quarter results on Thursday, while also forecasting current-quarter revenue above analysts' estimates.
"Revenue growth and guidance likely put to rest the biggest hang-up of owning Meta ... but we were more impressed with the long-term vision laid out," Bernstein analyst Mark Shmulik said.
Meta has been working at keeping costs low during the last year, and let go of more than 21,000 employees since late 2022, with Zuckerberg calling 2023 the "Year of Efficiency".
The world's biggest social media company has been spending billions of dollars over the past decade to boost its computing capacity for generative AI products it is adding to Facebook, Instagram and WhatsApp, and to hardware devices such as its Ray-Ban smart glasses.
Meta's shares trade at 21.29 times expected earnings, compared with a forward PE of 83.85 for social media rival Snap (SNAP.N), 20.38 for Alphabet (GOOGL.O), 40.51 for Amazon.com (AMZN.O), 31.57 for Microsoft (MSFT.O) and 27.36 for Apple.
Meta was on track to gain roughly $180 billion in market value, based on its share price of $464.44, if gains hold.
"The 'Year of Efficiency' has paid off, with both headcount and costs dropping, and Meta exceeding our expectations for full-year 2023 ad revenue," Jasmine Enberg, principal analyst at Insider Intelligence, said.
