Meta shares soar 12% after the company reports its first revenue increase in four quarters and issues an optimistic forecast

Autor: Article based upon analysis from Reuters Breakingviews
2 min

The recent slowdown in the advertising business that caused the company to shrink after years of double-digit annual growth did not scare investors.

Chief Executive Mark Zuckerberg promised to cut 21,000 jobs, and his efforts are starting to pay off. But a look into the future shows that Meta’s older competitors may be one step ahead.

The company’s first-quarter profit announced Wednesday beat analysts’ expectations, sending shares of the $530 billion company up 12% in after-hours trading.

The 3% year-over-year increase in revenue, the first increase in a long time, was a pleasant surprise. Operating margins fell from a year ago as cost increases outpaced revenue growth.

However, the market had expected a lower margin than the 25% the company reported. The number of daily and monthly active users also continues to rise:

Facebook daily active users (DAUs) were 2.04 billion on average for March 2023, an increase of 4% year-over-year.
Facebook monthly active users (MAUs) were 2.99 billion as of March 31, 2023, an increase of 2% year-over-year.
Ad impressions and price per ad – In the first quarter of 2023, ad impressions delivered across our Family of Apps increased by 26% year-over-year and the average price per ad decreased by 17% year-over-year.

That’s a good sign that Meta is coping with a tough advertising environment – and almost all of the money the company makes comes from that business.

The problem is that there are cracks at the core of the company. In order to grow ad volume by 26%, the company had to cut the average price per ad by 17%.

That suggests Facebook can’t charge as much for ad leads as it once could. The company also still plans to spend up to $33 billion on investments, including its ambitious Metaverse project, which Zuckerberg says the company remains committed to.

Meta is also keen to expand its artificial intelligence capabilities, adopting the buzzword that tech rivals Alphabet and Microsoft also used in their annual reports the previous day.

That’s despite the company losing $13 billion last year on its Reality Labs division, which houses the Metaverse. Zuckerberg said he expects those losses to increase this year.

Meta already has experience with artificial intelligence ( AI), and Facebook’s and Instagram’s trove of data could give the company a slight edge in advancing its model.

AI-based recommendations have already increased the time users spend on Facebook and Instagram and boosted advertising revenue, according to Zuckerberg.

Still, his attention – and money – is split between two new projects in a way that his competitors aren’t. Although he’s applying AI to the metaverse, the latter project may be going nowhere.

In the meantime, both projects are expensive, at the very moment the company needs to watch costs. Zuckerberg may love his virtual world, but the sooner he returns to the real world, the better.