Meta Returned to Revenue Growth, With its User Base Expanding in Q1 2023

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Revenue Growth

Big Tech earnings are in the spotlight this week, with Microsoft & Google having kicked-things off with solid results on Tuesday. On Wednesday, Meta Platforms took up the baton, providing strong financials and user metrics. [1]

The firm returned to growth in the first quarter of the year, since Revenue of $28.645 marked a 3% rise from Q1 2022, despite being lower than the previous quarter. Forwards guidance was also encouraging, as the company expects sales to rise to $29.5-32 billion in the second quarter.

Net Income dwindled on a year-over-year basis to $5.709 bullion, but the figure was significantly higher than the previous quarter. Operating Margin strengthened from the prior quarter as well, to 22%, but narrowed on a yearly basis.

User Base Expansion

The social media giant reached an important milestone this quarter, since Daily Active People (DAP) in the Family of Apps rose past the 3 billion mark for the first. The Family includes Facebook, Messenger, Instagram, WhatsApp and other services.

The user base of Facebook alone built on the recent expansion, since Daily Active Users (DAUs) on the app increased to an average 2.04 billion as of March.

These metrics show good momentum and resilience against competitors such as TikTok, which popularized short-form video posts. Meta's answer, Reels, has struggled for gain traction, but CEO Mr Zuckerberg, believes it is "gaining share" according to his comments on yesterday's earnings call. [2]

Advertising Recovery

The main source of Revenue for Meta is the advertising market, which had taken a hit last year, due to high inflation, recession fears and the lingering effects of Apple's iOS privacy changes. Yesterday's results though provided reasons for optimism.

Ad Impressions increased 26% year-over-year across the Family of Apps, primarily driven by Asia-Pacific and Rest of World, according to CFO Susan Li. Pricing remains under pressure with 17% y/y decline, but the CFO believes that improvements on targeting and measurement of advertisements, continue to drive "improved results for advertisers". [2]

Cost Cutting

Meta Platforms has been trying to turn things around from the hardships of the past year, with Mr Zuckerberg dubbing 2023 as the "Year of Efficiency" back in January [3], implementing cost and jobs cuts. The company announced another round of workforce reductions to the tune of 10,000 employees in March [4], with yesterday's results revealing a 1% y/y decrease in headcount.

Cost & Expenses shrunk more than 15% from the previous quarter, to $21.42 billion. More to it, the tech behemoth slashed its 2023 forecast by $5 billion, expecting total expenses $86-90 billion.

Metaverse & AI

In late 2021, the social media giant changed its name to Meta Platforms from Facebook, to highlight the decision to focus its energy and resources to developing the Metaverse, a virtual reality world. However, the project remains obscure and has failed to gain broad appeal.

Investors don't seem to like it either, probably because it is a money pit and monetization is not anywhere near the horizon. The division tasked with bringing Metaverse into life –Reality Labs – lost another $3.992 billion in the first quarter, while Revenue halved to just over $300 million.

More to it, generative AI stole the Metaverse's thunder, as OpenAI's ChatGPT has taken the world by storm. CEO Marck Zuckerberg jumped on the AI bandwagon, creating a product group to "turbocharge" the firms work in this technology [5]. He also spends "most" of his time on this area, according to his CTO Andrew Bosworth on a Nikkei Interview. [6]

The company appears to be scaling down its pursuit on the Metaverse, in favor of focusing more on generative AI. During yesterday's earnings call however, the CEO said that this narrative is "not accurate" and the firms remains "committed" to the Metaverse, which is a long-term project, while AI is more immediate.

Market Reaction

After a brutal 2022, META.us rallied in the first quarter as markets cheered the "Year of Efficiency". They also reacted positively to Wednesday's results, sending the stock around 10% higher in extended trading.

Nikos Tzabouras

Senior Financial Editorial Writer

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 27 Apr 2023 https://s21.q4cdn.com/399680738/files/doc_financials/2023/q1/Meta-03-31-2023-Exhibit-99-1-FINAL-v2.pdf

2

Retrieved 27 Apr 2023 https://s21.q4cdn.com/399680738/files/doc_financials/2023/q1/META-Q1-2023-Earnings-Call-Transcript.pdf

3

Retrieved 27 Apr 2023 https://s21.q4cdn.com/399680738/files/doc_financials/2022/q4/Meta-12.31.2022-Exhibit-99.1-FINAL.pdf

4

Retrieved 27 Apr 2023 https://about.fb.com/news/2023/03/mark-zuckerberg-meta-year-of-efficiency/

5

Retrieved 27 Apr 2023 https://www.facebook.com/zuck/posts/pfbid0vvSykpAEXpHHaKKyWMZ423TCq3qQDKtLu7m4XiRfUEYRrxzwpdewh3yYepnc1Bsrl

6

Retrieved 19 Jul 2024 https://asia.nikkei.com/Business/Technology/Meta-to-debut-ad-creating-generative-AI-this-year-CTO-says

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