Meta reported better-than-expected results for the third quarter as revenue increased 23%, the fastest rate of growth since 2021.
The stock initially rose in extended trading after the report, but then reversed course and fell more than 3% following cautionary comments from finance chief Susan Li about potential ad softness tied to the Middle East conflict.
Here are the key numbers:
- Earnings per share: $4.39 vs. $3.63 expected by LSEG, formerly known as Refinitiv
- Revenue: $34.15 billion vs. $33.56 billion expected by LSEG
Investors are also looking at user numbers:
- Daily active users (DAUs): 2.09 billion vs. 2.07 billion expected, according to StreetAccount
- Monthly active users (MAUs): 3.05 billion vs. 3.05 billion expected, according to StreetAccount
- Average revenue per user (ARPU): $11.23 vs. $11.05 expected, according to StreetAccount
Meta is seeing faster growth in its core digital ads business as clients rebound from a tough 2022, when revenue dropped for three straight quarters. Sales jumped from $27.71 billion a year earlier. Net income rose 164% to $11.58 billion, or $4.39 a share, from $4.4 billion, or $1.64 a share, a year earlier.
Meta's business is outperforming competitors. Google parent Alphabet said in its earnings report Tuesday that ad revenue increased about 9.5%, while smaller rival Snap reported revenue growth of 5%.
A big part of Meta's reacceleration appears to be because it is furthest along in terms of improving the effectiveness of its online ads following Apple's iOS privacy changes in 2021, which made it hard for app developers to target users. Meta has pointed to its hefty investments in artificial intelligence as a key technology that has helped it land retailers looking to serve customers targeted promotions.
CEO Mark Zuckerberg said on the earnings call that so far this year, the company has seen a 7% increase in time spent on Facebook and a 6% bump on Instagram “as a result of our recommendation improvements.”
Susan Li, Meta's finance chief, told analysts on the call that online commerce was the biggest contributor to year-over-year growth in ad revenue, followed by consumer packaged goods and gaming.
However, Li said the company widened its revenue guidance range for the fourth quarter because of unpredictability in the Middle East due to the Israel-Hamas war.
“We have observed softer ads in the beginning of the fourth quarter, correlating with the start of the conflict, which is captured in our Q4 revenue outlook,” Li said on the call. “It's hard for us to attribute demand softness directly to any specific geopolitical event.”
Meta said it expects revenue of $36.5 billion to $40 billion in the current quarter. Analysts were expecting sales for the quarter of $38.85 billion, according to LSEG. At the midpoint of the range, growth in the quarter will be about 19% higher from a year earlier.
Meta said expenses for 2023 will be in the range between $87 billion and $89 billion, which is down from its previous forecast of $88 billion to $91 billion. Expenses for 2024 will fall in the range between $94 billion and $99 billion.
“In terms of investment priorities, AI will be our biggest investment area in 2024, both in engineering and computer resources,” Zuckerberg said on the call.
Meta's Reality Labs division, which focuses on virtual reality and augmented reality technologies, racked up $3.74 billion in operating losses for the quarter. It has now lost close to $25 billion since the start of last year — that's after releasing its Quest 3 headset and other new products.
“I'm proud of the work our teams have done to advance AI and mixed reality with the launch of Quest 3, Ray-Ban Meta Smart Glasses and our AI studio,” Zuckerberg said.
The company said it expects Reality Labs' operating losses “to increase meaningfully year-over-year due to our ongoing product development efforts in augmented reality/virtual reality and our investments to further scale our ecosystem.”
Meta has 66,185 employees as of Sept. 30, which is a 24% year-over-year decrease. The company said “a substantial majority of the employees” who were part of its major cost-cutting efforts are no longer included in its headcount.
“Beginning in 2022, we initiated several measures to pursue greater efficiency and to realign our business and strategic priorities,” Meta said in its earnings release. “As of September 30, 2023, we have substantially completed planned employee layoffs while continuing to assess facilities consolidation and data center restructuring initiatives.”
Total costs and expenses declined 7% from a year earlier to $20.4 billion, underscoring Zuckerberg's “year of efficiency” declaration in February, when he emphasized the need for a slimmer and more nimble workforce.
Meta's stock price is up about 150% this year, the second-best performer in the S&P 500, behind only AI chipmaker Nvidia.
Correction: This story has been updated to reflect that Refinitiv is now known as LSEG. A previous version of this story misspelled the company name.
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