Get 40% Off
⚠ Earnings Alert! Which stocks are poised to surge?
See the stocks on our ProPicks radar. These strategies gained 19.7% year-to-date.
Unlock full list

Meta Platforms Surges as Strong Cost Control Yields EPS Beat

Published 04/28/2023, 03:15 PM
Updated 07/09/2023, 06:31 PM
  • Meta shares soared on Thursday and are 100% up year-to-date.
  • The Facebook parent reported stronger-than-expected results for its first quarter.
  • Meta offered an upbeat revenue forecast for this quarter while simultaneously slashing its cost outlook for 2023.

Facebook owner Meta Platforms (NASDAQ:META) posted a strong earnings report for its first quarter on Wednesday, sending the company’s shares up more than 11% in premarket trading today.

The tech giant reported first-quarter earnings per share (EPS) of $2.20, beating the analyst consensus of $2.03 per share, according to Refinitiv. Revenue surged to $28.65 billion in the quarter, up 3% from $27.91 billion in the same period last year, while analysts were expecting $27.65 billion.

This is the first time Meta’s sales increased year-over-year (YoY) after three consecutive quarters of decline.

Revenue Increases as Costs Go Down

Facebook parent said the number of daily active users (DAUs) in the three-month period stood at 2.04 billion, topping the consensus estimates of 2.01 billion, as per StreetAccount. Meta reported 2.99 billion monthly active users (MAUs), in line with the consensus projection. The average revenue per user (ARPU) was reported at $9.62, beating the analyst estimates of $9.30.

Reality Labs, Meta’s metaverse-focused business unit, generated $339 million in sales, though it reported an operating loss of a whopping $3.99 billion. Meta said operating losses at Reality Labs are expected to mount throughout the year.

Net income declined 24% to $5.71 billion in the quarter, or $2.20 per share, from $7.47 billion, or $2.72 per share, in the same period last year. Meta reported a negative impact of 44 cents on its EPS due to recent restructuring costs.

For Q2 2023, Meta said it expects revenue to be in the range of $29.5 billion to $32 billion, compared to analysts’ expectations of $29.5 billion. Meta also said its quarterly price per ad fell 17% from a year ago.

“We had a good quarter and our community continues to grow,” said Mark Zuckerberg, co-founder and CEO of Meta, adding that the company is growing “more efficient so we can build better products faster and put ourselves in a stronger position to deliver our long term vision.”

The tech mammoth trimmed its annual expenses outlook to a range of $86 billion and $90 billion, down from the previous range of $86 billion to $92 billion, when the company announced the second round of workforce reductions. The strong cost control is one of the key drivers of Thursday’s rally in shares.

Heavy AI Investments Continued

During the earnings call, Zuckerberg said that AI has helped the company drive traffic on Facebook and Instagram platforms, as well as increase its profits made from ad sales - hence the strong revenue forecast.

Compared to some other tech companies, Meta has been rather slow to implement AI into its hardware and software systems. However, the Menlo Park, California-based company has completed multiple major revamps to reinforce its core business, including a massive effort to expand its AI capacity.

"At this point, we are no longer behind in building out our AI infrastructure," Zuckerberg said. "And to the contrary, we now have the capacity to do leading work in this space at scale."

Thanks to its AI recommendations, time spent on Instagram rose by 24% in the first quarter, Meta noted.

Atlantic Equities’ James Cordwell said that a bulk of Meta’s AI investments “have gone into the advertiser side.”

"So as a consumer we're maybe not seeing the fruits of their labor in that area, but it certainly seems as if they are able to use more advanced algorithms to maintain a certain level of ad targeting."

Due to the increased spending on AI, Meta’s capital expenditures have been somewhat elevated in the latest quarter, at $7.1 billion. Still, that figure was below analysts’ estimates of $7.2 billion. For the full year, Meta expects its capital expenditures to range between $30 billion and $33 billion in 2023, taking into account the company’s aggressive artificial intelligence (AI) investments and ad-supported offerings such as Reels and the newsfeed.

However, Meta hinted that capital expenditures could increase further as the company doubles down on building products for generative AI. This nascent technology is able to produce human-like texts, videos, and images, among other content.

Zuckerberg said on Wednesday that Meta’s recent AI-related efforts will not affect the company’s focus on the metaverse, reiterating his plans to continue investing in virtual reality (VR) and augmented reality (AR) offerings.

"A narrative has developed that we're somehow moving away from focusing on the metaverse vision. I just want to say upfront: that's not accurate," he said. "We've been focusing on both AI and the metaverse for years now, and we will continue to focus on both."

Ad Market Stabilizing

Quarterly earnings reports of Meta and its rival Alphabet (NASDAQ:GOOGL) showed that the two tech behemoths are luring back advertisers as they rotate away from small digital ad sellers like Snap (NYSE:SNAP) due to the current economic uncertainty.

After spending billions of dollars on ads during the coronavirus pandemic, ad sales-dependent tech companies faced challenging comparisons in recent quarters. 41-year-high inflation and a series of jumbo interest rate hikes have fueled concerns about the state of the economy, forcing customers to notably reduce their ad spending.

But the social media ad market is expected to grow at a quicker pace in 2023 compared to last year, according to data by media and intelligence firm MAGNA. While Q1 ad sales at Alphabet fell year-over-year to $54.55 billion, that figure was higher than what analysts estimated.

This is likely because advertisers are returning to established, familiar platforms such as Google and Facebook, said Brian Mulberry, a portfolio manager at Zacks Investment Management.

***

Shane Neagle is the EIC of The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.