Facebook’s parent company, Meta (FB.O), rebounded from a decrease in users early this year, posting a profit ahead of Wall Street estimates and confounding low investor expectations with a quarterly report that pushed shares up 20%.
Mark Zuckerberg, the CEO of Meta, also announced that the firm would cut costs and invest in artificial intelligence tools to improve suggestions and adverts, indicating that Meta is focusing on making money while working on its long-term goals to develop the metaverse.
On Wednesday, its shares jumped 19 percent in after-hours trading.
According to IBES statistics from Refinitiv, Meta’s profit blew beyond Wall Street expectations, coming in at $2.72 per share vs an average analyst forecast of $2.56. Meta’s revenue growth was the weakest in a decade, tempering the earnings beats.
According to IBES data from Refinitiv, Facebook daily active users (DAU), a critical metric for marketers, were 1.96 billion, slightly higher than the estimate of 1.95 billion. The number of monthly active users came in at 2.94 billion, falling short of Wall Street expectations by 30 million.
After a disastrous February earnings report in which Facebook’s daily active users fell for the first time, the company forecasted a bleak quarter, blaming ongoing issues such as Apple’s (AAPL.O) privacy improvements and growing competition from platforms like ByteDance’s TikTok.
“It’s encouraging that Meta was able to maintain DAU growth. It needs to show a significant improvement over the previous quarter’s performance “Debra Williamson, an analyst with Insider Intelligence, stated.
“However, the number of monthly active users is rapidly declining. It was possible to bet on new markets to keep the growth engine running a few quarters ago, but even these high-growth chances are likely to be drying up “she stated
According to IBES statistics from Refinitiv, total revenue, which is primarily made up of ad sales, increased 7% to $27.91 billion in the first quarter, but fell short of analysts’ expectations of $28.20 billion.
Chief Financial Officer Dave Wehner noted a slowdown in ecommerce after strong growth during the COVID-19 epidemic, as well as a loss of income in Russia and reduced ad demand amid global economic uncertainties, in a conference call with analysts on Wednesday. On the call, Zuckerberg highlighted past cautions about the difficulties of shifting engagement toward services like Reels, a short video offering that earns less revenue than other ad formats.
In March, Russia blocked Facebook and Instagram, accusing Meta of “extremist behavior,” as part of Moscow’s social media crackdown following its invasion of Ukraine. The prohibition has no effect on Meta’s messaging service WhatsApp. Advertisers in Russia are also restricted from developing and running ads elsewhere in the world, according to Meta.
The second-quarter revenue is expected to be between $28 billion and $30 billion, according to Meta. Analysts predicted $30.63 billion in sales for the current quarter. The company said its forecast was influenced by a number of variables, including the conflict in Ukraine, and that it was keeping an eye on the possible impact of regulatory changes in Europe.
In light of growing inflation and geopolitical instability, recent earnings results from Google parent Alphabet Inc (GOOGL.O) and Snap Inc (SNAP.N) have shown the impact of global economic turmoil on digital ad spending.
“I think the expectations after Google were absolutely for the worse,” Rick Meckler, a partner at Cherry Lane Investments, a family investment firm in New Vernon, New Jersey, said. “I think investors who had shorted the company and those who had…given up on it chose to come back in when they came in with EPS over forecasts.”
Meta cut its total expenses forecast for 2022 to $87 billion to $92 billion, down from $90 billion to $95 billion previously.
On the call, Meta executives said the company was investing heavily in AI and machine learning to increase ad capabilities as it deals with the fallout from Apple’s operating system updates, which have made it more difficult for advertisers to target and measure their advertisements on Facebook and Instagram.
However, Meta was delaying the pace of some longer-term investments in its AI infrastructure and Reality Labs hardware division, which is home to its augmented and virtual reality projects, due to current business growth levels, according to Zuckerberg.
Reality Labs’ hardware branch brought in $695 million in quarterly revenue for Meta. It reported $3 billion in operating losses as a result of its metaverse ambitions.
Zuckerberg has warned that realizing Meta’s goals of developing the metaverse, a futuristic concept of virtual spaces where people can work, socialize, and play, will cost billions of dollars and take years.