Meta Exceeds Expectations with Strong Q3 Results

Meta, the parent company of various popular platforms including Facebook and Instagram, has reported impressive results for the third quarter, marking a 23% growth in revenue, the fastest expansion rate since 2021. However, their stock initially experienced an uptick in after-hours trading following the announcement, only to reverse course and decline by more than 3% after cautious comments from their finance chief, Susan Li, regarding potential ad challenges due to the Middle East conflict.

Meta has witnessed accelerated growth in its core digital advertising business as clients recover from a challenging 2022 when revenue declined for three consecutive quarters. This quarter, their sales surged from $27.71 billion year-on-year. Net income also experienced a remarkable uptick of 164% to reach $11.58 billion, equivalent to $4.39 per share, compared to $4.4 billion, or $1.64 per share, during the same period last year.

Meta’s business performance surpasses that of its competitors, with Google’s parent company, Alphabet, reporting an ad revenue increase of around 9.5%, and smaller rival Snap experiencing a 5% growth in revenue.

A significant factor contributing to Meta’s reaccelerated growth appears to be their success in improving the effectiveness of online ads, particularly following Apple’s iOS privacy changes in 2021, which had made it challenging for app developers to target users. Meta’s substantial investments in artificial intelligence have played a pivotal role in landing partnerships with retailers seeking to offer customers precisely targeted promotions.

Mark Zuckerberg, CEO of Meta, shared that this year, the company witnessed a 7% increase in the time spent on Facebook and a 6% boost in Instagram usage, attributed to the enhancements made in content recommendations.

Susan Li, Meta’s CFO, disclosed that online commerce was the largest contributor to the year-over-year growth in ad revenue, closely followed by the consumer-packaged goods and gaming sectors.

Nonetheless, Li cautioned about the unpredictability in the Middle East resulting from the Israel-Hamas conflict, which has led the company to widen its revenue guidance range for the fourth quarter. Although she refrained from attributing the demand softness directly to geopolitical events, Meta anticipates Q4 revenue in the range of $36.5 billion to $40 billion. Analysts had previously projected sales of $38.85 billion for the quarter, according to LSEG. At the midpoint of this range, the quarter’s growth will be approximately 19% higher compared to the same period the previous year.

Regarding expenses, Meta has revised its estimates for 2023, which are now expected to fall within the range of $87 billion to $89 billion, down from the earlier forecast of $88 billion to $91 billion. In 2024, expenses are anticipated to range between $94 billion and $99 billion, with artificial intelligence being the primary investment focus.

Meta’s Reality Labs division, dedicated to virtual and augmented reality technologies, reported operating losses of $3.74 billion for the quarter, accumulating close to $25 billion in losses since the beginning of last year. These investments include the release of their Quest 3 headset and other innovative products, including the Ray-Ban Meta Smart Glasses and an AI studio.

While the company expects Reality Labs’ operating losses to increase significantly year-over-year due to ongoing product development and ecosystem scaling efforts, Meta has noted a 24% decrease in their workforce year-on-year, bringing their employee count to 66,185 as of September 30, 2023. This reduction in employee numbers is a result of a substantial workforce optimization initiative initiated in 2022.

The company has effectively implemented cost-cutting measures while still assessing facility consolidation and data center restructuring initiatives. Total costs and expenses saw a 7% decrease from the previous year, aligning with Mark Zuckerberg’s commitment to a “year of efficiency,” emphasizing the need for a more streamlined and agile workforce.

Despite initial stock market fluctuations, Meta’s stock price has surged by approximately 150% this year, making it the second-best performer in the S&P 500, surpassed only by AI chipmaker Nvidia.