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Meta revenue surpassed analyst expectations in its first quarter of the year, marking an unexpectedly positive earnings report as the company faces ongoing economic headwinds and rising competition.
The company reported a first-quarter revenue of $28.10bn, beating expectations of $27.66bn and up 3% year-over-year. Shares were up 9% in after hours trading, as the results boosted investor confidence in a company that has been struggling in its attempts to successfully restructure its business model.
Meta, which owns Instagram, Facebook and WhatsApp, has in recent years attempted to pivot away from social media to the metaverse – its virtual reality program. But the road has been rocky, with the company losing billions as attempts by Mark Zuckerberg and other executives to calm increasingly worried investors.
Meta now appears to be shifting to focus more strongly on artificial intelligence, following a trend in the industry as the massive success of Microsoft-owned tool ChatGPT launched a new boom in the technology.
“We had a good quarter and our community continues to grow,” said Zuckerberg, Meta founder and chief executive officer, in a statement accompanying the results. “Our AI work is driving good results across our apps and business. We’re also becoming more efficient so we can build better products faster and put ourselves in a stronger position to deliver our long term vision.”
Despite the revenue beat, Meta’s net income company-wide was down 24% year-over-year, from $7.47bn to $5.71bn. In addition to its metaverse challenges, the company has battled a broader slump in advertising spending due to a weakening economy and a shift of consumer behavior, as easing Covid-19 restrictions led to less time online. While its advertising impressions were up 26% year-over-year, ad prices were down 17% year-over-year.
The report comes after Meta continued mass layoffs this month, as part of a planned “year of efficiency” that Zuckerberg announced in February 2023.
Those layoffs are set to impact more than 20,000 workers and come after Meta reported a peak of 87,000 employees globally in 2022 after the Covid-19 pandemic boosted online activity and cash inflow.
But as the pandemic-fueled trends changed, Meta has struggled to keep up its pace with disastrous results – with investors wiping $80bn (£69bn) off the company’s market value in October after a poor earnings report.
The company has also struggled to compete with the rise of TikTok and invested more heavily in its competing technology, Instagram Reels, and Facebook video – which Zuckerberg has admitted is more difficult to monetize than its previous primary platforms.
In a forward-looking statement, Meta said it anticipates capital expenditures to be in the range of $30-33bn as it seeks to further build out AI capacity in its platforms. While artificial intelligence was a focus of its quarter one press release, the company scarcely mentioned its virtual reality program, the metaverse, into which it has funneled huge amounts of funding.
That unit, Reality Labs, saw a significantly smaller revenue than expected at $339m compared with $613.1m estimated, giving it an operating loss of $3.99bn compared with an estimated $3.8bn. With ongoing expenditure issues, Meta will not be out of the woods any time soon when it comes to the metaverse, said Mike Proulx, an analyst at market research firm Forrester.
“Metaverse ambitions are bleaker than ever, at least for now,” he said, citing Reality Labs’ 50% year-over-year decline in revenue. He added that according to Forrester research, less than 24% of online adults in the US said they were excited by the metaverse.
“It’s no surprise that Mark Zuckerberg led his earnings release with a focus on AI,” Proulx said.
On a call with investors Wednesday, Zuckerberg reiterated that the metaverse goal is not dead: “Building the metaverse is a long-term project, but the rationale for it remains the same and we remain committed to it,” he said.
Meta’s earnings report comes after Google’s parent company Alphabet similarly focused its earnings report on artificial intelligence capabilities on Tuesday. Both companies reported stronger-than-anticipated earnings this week, marking a potential recovery in the troubled tech sector.
Reuters contributed reporting.
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