Meta’s earning report for the third quarter of 2023 were upbeat as its profits doubled. But all is not well for the company as it faces uncertainty in the future.
Facebook-parent Meta’s “year of efficiency” strategy seems to be working, as the company on Wednesday reported strong earnings for the financial quarter ending in the month of September. While this pushed up the company’s share price by 3 per cent in the short term, it has slid down after extended trading following comments from Chief Financial Officer Susan Li about potential “ad softness” in light of the ongoing Israel-Hamas conflict.
Meta Q3 report: The good news
Meta reported a 23 per cent year-on-year growth in Revenue in the third quarter of 2023. While costs and expenses rose by 7 per cent, the company’s net income jumped by 164 per cent. Part of this increase in net income can be attributed to the several rounds of layoffs that the company began in 2022. Its headcount decreased 24 per cent year-on-year to 66,186 as of September 30 2023, and the company says a “substantial majority” of the employees impacted by the layoffs are no longer included in the reported headcount.
The Instagram parent, in a press statement, said that it had finished planned employee layoffs for the most part. But at the same, it continues to assess its facilities, looking to consolidate them and restructure data centres.
CFO Li expects that the full-year expenses for the company at the end of 2023 will be in the range of $87 to $89 billion, which is lowered from the previously expected range of $88 to $91 billion. This estimate also includes the $3.5 billion that the company will incur in restructuring costs, facilities consolidation charges and severance, and other personnel costs.
Daily active users (DAUs) saw an increase of 5 per cent year-on-year to 2.09 billion. Monthly active users (MAUs) rose 3 per cent to 3.05 billion. Interestingly, ad impressions across the company’s family of apps increased 31 per cent year-on-year even as the average price per ad decreased by 6 per cent year-on-year.
CEO Mark Zuckerberg added during the investor call that the company saw a 7 per cent increase in the time spent on Facebook and a 6 per cent bump on Instagram as a result of its recommendation algorithm improvements, reports CNBC.
Meta Q3 fallout: The bad news
While the otherwise upbeat earnings report for the third quarter of 2023 encouraged investors, it was the projections for 2024 that put the brakes on. “We are subject to volatility in the macro landscape. “The revenue outlook is uncertain [for 2024]” said CFO Li on a call with investors, reports Bloomberg.
Every year, Meta pours billions of dollars into Reality Labs, its division that researches and develops virtual and augmented reality hardware, like the Quest devices. The revenue brought in by the division is a blip compared to its spending. To illustrate, in the quarter ending September 30, 2023, it spent $3.7 billion while bringing in about $210 million.
In order to keep investors happy, Meta has to balance the losses incurred by Reality Labs with increases in ad revenue from its “Family of Apps,” which includes Facebook, Instagram, Messenger, WhatsApp, and other services.
But in 2022, Meta posted its first revenue decline. Investors responded by driving the stock down in the worst year for Meta shares. The company sought to mend declining investor confidence by cutting back on costs, most notably, with multiple rounds of massive layoffs.
Despite the initial positive outlook presented by the third quarter results, Li said the company might have to widen its revenue guidance range for the fourth quarter because of the ongoing Israel-Palestine conflict, reports CNBC.
“We have observed softer ads at the beginning of the fourth quarter, correlating with the start of the conflict, which is captured in our Q4 revenue outlook,” said Li, while admitting, “it’s hard for us to attribute demand softness directly to any specific geopolitical event.”
Meta’s strategy going forward
Despite dampened investor confidence in the company’s metaverse strategy, the company has increased its commitment to the concept of augmented and virtual reality. It launched a new virtual reality headset, the Quest 3. The company also launched another iteration of the smart glasses that it developed with Ray-Ban.
Like many of its tech peers, Meta is not too keen to be caught behind in the generative AI race that unfolded, with OpenAI releasing ChatGPT in 2022. The company plans to introduce AI-powered personas on Facebook and Instagram to increase engagement. These personas could offer users new ways to interact with the platform, get recommendations and more.
Curiously, the company that has been lambasted in the past for the lack of transparency in its algorithms is also the one building the most transparent AI foundation model, according to a recent Stanford study.
Source:indianexpress.com