Meta’s $40 billion War Chest goes to Wall Street

Investors are urging Meta to focus less on the Metaverse and more on its established core businesses. Justin Sullivan/Getty Images)

Meta is buying back $40 billion worth of stock from investors even as it cuts jobs.
It’s a move aimed at propping up the stock price as business and revenue growth falter.
Analysts say the FTC is likely to prevent them from making any major acquisitions, so this is a better use of the money.

Meta used to throw its money into fun things like employee perks, the Metaverse, and acquisition binges. But as Meta’s “year of efficiency” continues, Mark Zuckerberg must put his $40.74 billion cash stack to a more boring — but perhaps more practical — use: keeping shareholders happy.

Since 2012, Meta Platforms, formerly Facebook, has acquired over 100 companies, including big names like WhatsApp, Instagram and Oculus. These acquisitions helped Meta become the internet giant it is today.

The social media giant’s revenue has grown over the years from $5 billion in 2012 to $116 billion last year. As revenue has grown, so has capital stocks: In its February earnings report, Meta said it had a

But with Meta’s revenue growth faltering, its share price struggling, and external pressures catching up, that money must now be channeled into share buybacks and other maneuvers more related to its financial health than innovation.

Meta can’t make big acquisitions and needs to win over Wall Street

The antitrust scrutiny is still a thorn in her side when it comes to acquisitions. Investors aren’t interested in funding the Metaverse push at the expense of profits. The economic environment remains uncertain; and the pandemic tech bubble has finally burst, pushing meta’s numbers back to pre-pandemic levels.

After peaking in 2021 during the height of the tech bubble, the company’s stock has fallen from nearly $400 a share to just over $200, about where it was before the pandemic. To allay worries about the stock price, the company announced earlier this year that it would buy $40 billion worth of stock from investors. The idea would be to support value while offsetting the poor timing of recent share buybacks.

UBS equity analyst Lloyd Walmsley told Insider that the buyback was “a natural progression” for a company that’s flush with plenty of cash but also has so much antitrust scrutiny that it would be particularly difficult to make large acquisitions. Walmsley was referring to the Federal Trade Commission’s skepticism about large-scale technology mergers under the Biden administration.

Angelo Zino, senior equity analyst at CFRA Research, agrees that he expects Meta to stay away from major acquisitions for a while, saying that “the political landscape is likely preventing big tech from getting bigger.”

The FTC sued Meta last July for acquiring Within, a virtual reality fitness app, accusing Meta of buying up too many VR competitors and stifling competition in emerging markets. Despite a judge approving the deal in February, the lawsuit has spooked the industry a little as it helps pave the way for more cases against Big Tech. Since Meta just settled over $5 billion with the FTC in another matter in 2019, it’s not trying to tease the bear.

Instead, the money that would have normally flowed into these kinds of big deals could flow straight back to investors, renewing the company’s appeal on Wall Street.

“We see the possibility that Meta could initiate a small dividend to attract a new class of investors,” Zino said.

Wall Street needs to be convinced of Meta’s future

The moves to appease Wall Street may come at the right time considering the Wall Street meta has been pressuring to cut costs, including through the big layoffs of recent months.

In November, Meta began laying off 13% of the company and announced in March that it would lay off another 10,000. The Metaverse, Meta CEO Mark Zuckerberg’s big bet on the future, used to pump tens of billions of dollars in to fund acquisitions like Within’s.

But investors have successfully forced Meta to back out of that as well, especially after Meta’s free cash flow peaked in 2021 at $38.4 billion and then fell to $18.4 billion by the end of 2022 was.

Ultimately, investors want Meta to make smarter bets given the challenges its business is facing.

“Meta’s revenue potential is likely to be most challenged among mega-cap tech names during uncertain macro times and competitive pressures,” Zino wrote in a note to clients this week.

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