Meta Exceeds Q3 Earnings Expectations with a Strong Focus on Efficiency
Meta, the parent company of Facebook, exceeded expectations on Wall Street as it reported impressive earnings for the third quarter of 2023. The success comes as Meta’s “year of efficiency” strategy continues to deliver strong results, and it’s reported that the company has largely completed the cost-cutting measures put in place in response to a challenging 2022.
For the third quarter, Meta reported a 23% year-over-year increase in quarterly revenue, surpassing $34 billion, which exceeded the $33.5 billion anticipated by analysts. Additionally, Meta doubled its profits compared to the same quarter the previous year, posting net income of nearly $11.6 billion. This is a significant improvement, considering that during the same period in the prior year, Meta’s profits had decreased by half.
In response to these impressive results, Meta’s stock (trading under the ticker symbol META) surged as much as 4% in after-hours trading following the earnings report. As of the close of the market on Wednesday, Meta stock had already seen a year-to-date increase of 140%.
Investing.com senior analyst Jesse Cohen referred to the quarter as a “blowout” and highlighted it as the most profitable quarter for Meta in recent years. This impressive performance reflects the company’s ongoing efforts to improve efficiency and financial stability.
Mark Zuckerberg, CEO of Meta, had initially outlined plans for a “year of efficiency” earlier in the year. The company had been navigating challenges from Apple’s privacy changes affecting app advertising and the broader economic uncertainty that impacted digital ad spending. Meta had also been facing increased competition from platforms like TikTok.
However, Meta’s strong user growth, especially for the Facebook platform, was evident. Facebook’s monthly active users grew by 3% year-over-year, surpassing 3 billion users. This growth marked an improvement from the 2% growth rate reported during the same quarter the previous year.
Positive signals also emerged for Meta’s core advertising business. Ad impressions across all Meta apps experienced a 31% year-over-year growth in the third quarter. While there was a 6% year-over-year decrease in the average price per ad, this rate of decline was more modest than the 18% decrease recorded in the same period the previous year.
Meta has been actively working to enhance its ad targeting technology, utilizing artificial intelligence to improve advertiser return on investment. It has also been focusing on better monetizing popular features like Reels on Instagram.
As the macroeconomic outlook stabilizes, advertisers are returning to higher spending, which benefits Meta. The company’s solid performance suggests that advertisers are choosing to allocate their budgets to platforms like Facebook and Instagram, favoring them over smaller social media networks.
Meta CFO Susan Li addressed the softening of ad spend during the early part of the fourth quarter, correlating it with the outbreak of the Israel-Hamas conflict. However, Li noted that it’s challenging to attribute demand softness to any specific geopolitical event.
Despite Meta’s positive results, the company faces various challenges. Shortly before the earnings report, Meta was sued by multiple states, with allegations that the social media giant’s features, such as infinite news feeds and frequent notifications, harm the mental health of young users by making the platform addictive.
Meta refuted these claims, asserting that it has already introduced over 30 tools to support teenagers and their families. Additionally, Meta has been heavily investing in its Reality Labs unit, which focuses on metaverse development and experienced a loss of over $3.7 billion during the third quarter. While Meta has adjusted its total expense guidance for 2023 to between $87 billion and $89 billion, it anticipates that Reality Labs’ operating losses will increase year-over-year in both 2023 and 2024.
Looking ahead, Meta projects year-over-year revenue growth for the final quarter of 2023, estimated to be between 13.5% and 24%.
Zuckerberg emphasized that Meta’s commitment to efficiency will continue. The company recently achieved its highest operating margin in two years, and AI is expected to be a significant area of investment in 2024.
Furthermore, Zuckerberg revealed that Threads, Meta’s platform aimed at competing with Twitter, has nearly 100 million monthly active users. This suggests steady growth, as it initially experienced a surge in sign-ups followed by a decline in engagement after its launch in July. Zuckerberg expressed optimism that Threads has a good chance of reaching 1 billion users if it sustains growth over the next few years.
