Meta will reward shareholders with its first-ever dividend and $50 billion in buybacks thanks to fourth-quarter 2023 results that sent the stock up more than 15% in after-hours trading on Thursday, Feb. 1.

This is in addition to the $31 billion remaining as part of a buyback plan announced last year. Mark Zuckerberg, CEO of Meta, will receive $175 million in quarterly dividends for his 350 million shares. The news sent Nasdaq futures soaring, rising about 1% on Friday, February 2.

The parent company of Facebook and Instagram said the quarterly dividend of 50 cents per share would be paid on March 26, a sign of a pick-up in growth after Meta suffered a decline in advertising between late 2022 and 2023. The jump in the share price added $140 billion to Meta’s market capitalization, which recently surpassed $1 trillion in value.

Meta’s dividend will be welcomed by investors as another sign that Zuckerberg has reversed his controversial decision to invest larger and larger sums in the Metaverse, the virtual reality version of the current internet. Meta estimated on Thursday that investments for 2024 would be between $30 billion and $37 billion, an increase of $2 billion from the high end of previous forecasts, citing AI and non-AI servers as well as data centers.

Fourth quarter 2023 beats expectations

Meta’s revenue rose 25% in the fourth quarter to $40.1 billion, beating analysts’ expectations of an increase to $39.1 billion. Net income jumped 201% to $14 billion, beating consensus estimates of $13 billion (S&P Capital IQ).

Anthony Ginsberg, manager of several technology-related ETFs launched in partnership with HANetf, explains: “To this day, Meta remains a social media company. About 98% of its revenue comes from advertising apps like Facebook, Instagram, Reels, WhatsApp, and Threads. Of these, Facebook alone has more than 3 billion active users and the share price jumped by almost 200% in 2023 following certain choices made by the company during the year that led to the elimination of nearly 20,000 jobs.”

According to the expert, Meta “does not yet have the variety of revenue that other multi-billion dollar companies enjoy. However, with a strong focus on digital ad spend, it captured 20.8% of all digital ad sales in the U.S. in 2023 and is expected to hold a 20.4% share in 2024 in the same region. In this context, only Google, owned by Alphabet, has a higher share planned for the two years.”

Meta begins to comply with Wall Street’s rules

According to the FT’s calculations, Meta’s first dividend, at 50 cents per share, is relatively low, ranking 31st in the S&P 500 index for the total amount paid each year. But the move shows that the social media group is committed to returning cash to long-term investors.

It is also a testament to the maturation of the corporate culture, which could show that the company is increasingly willing to abide by Wall Street’s rules. It’s no surprise that Meta’s shares jumped more than 15% in after-hours trading. According to Howard Silverblatt, an analyst at S&P, “this is a sign that Meta believes it continues to expect more cash flow.”

Why have big tech companies always avoided paying dividends?

Big tech companies have historically avoided paying dividends to their shareholders, preserving significant cash that can be reinvested to fund new growth initiatives and hedge against industry upheaval. When Microsoft started paying dividends in 2003, it was seen as a sign that its rapid growth rate was slowing.

Dividends are seen as a more tangible commitment to shareholders than share buybacks, which can be discontinued more easily and are generally expected to increase in value each year. In times of economic uncertainty, investors tend to turn to dividend stocks, which guarantee income even if prices fall.

The Huge Cash Flow of the Magnificent Seven

Meta’s move is another sign of the sharp increase in cash flow that has led to the dominance of big tech companies in the S&P 500, where the Magnificent Seven — a collection of tech stocks including Alphabet, Amazon, Nvidia and Tesla — dominated the stock market last year.

With huge cash reserves, these companies are under increasing pressure to return funds to shareholders. According to public filings, Apple had $160 billion in cash and tradable securities at the end of December 2023, Alphabet $111 billion, Microsoft $81 billion, Amazon $74 billion, and Meta $65.4 billion.

Microsoft, the world’s largest company by market capitalization, is the index’s largest dividend payer in real terms, distributing $22.3 billion to shareholders on an annual basis, according to S&P. Apple comes in third, with $14 billion. However, Microsoft and Apple have some of the lowest dividend yields in the S&P 500 Index (restricted reproduction).

The original article can be found at Net Public


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