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On Wednesday, Meta Platforms Inc CEO Mark Zuckerberg announced that the company is utilizing AI to increase traffic on Facebook and Instagram and generate more revenue from digital advertisements. Furthermore, the company predicted a quarterly revenue that surpasses analyst forecasts.
After announcing its better-than-expected first-quarter financial results, Meta Platforms Inc’s shares rose by 12% in after-hours trading, increasing its market value by over $50 billion. This rally in tech shares began after strong earnings reports from Alphabet Inc and Microsoft Corp on Tuesday. In addition to beating expectations for first-quarter profit and revenue, which saw its first year-over-year increase in nearly a year, Meta also narrowed its cost outlook range for the year, suggesting that expenses could be lower than previously forecasted in March.
During a conference call, Meta CEO Mark Zuckerberg said that the company has undergone several costly transformations to strengthen its core business, including a significant effort to enhance its AI capabilities. Meta, which has been slow to embrace AI-friendly hardware and software systems, has now caught up and is capable of leading work in the field at scale.
According to Meta, AI recommendations led to a 24% increase in time spent on Instagram during the January-March quarter. Analyst James Cordwell of Atlantic Equities noted that, like Alphabet, Meta has invested heavily in AI for advertisers. While consumers may not see the direct impact of these investments, the company is able to use advanced algorithms for more effective ad targeting.
Insider Intelligence’s principal analyst Debra Aho Williamson said that Meta’s results showed that its aggressive cost-cutting initiative, which includes the elimination of 21,000 jobs and a flatter middle-management structure, is “off to a stronger than expected start.” This drive is part of CEO Mark Zuckerberg’s plan to make 2023 the “year of efficiency” for the company.
“After the challenging economic environment in 2022, achieving a 3% year-over-year revenue growth is commendable. Meta’s positive Q2 revenue outlook suggests that the company may be on the road to recovery,” said Debra Aho Williamson, principal analyst at Insider Intelligence. The social media company struggled in 2022 as the pandemic-driven e-commerce surge slowed down, and competitors like TikTok gained popularity among younger users. Additionally, Apple’s privacy updates limited Meta’s access to user data, which is integral to its advertising business.
The company’s investment in AI infrastructure has led to a rise in capital expenditures, which were slightly lower than expected at $7.1 billion for the quarter. The company’s annual forecast of $30 billion to $33 billion in capital expenditures remained unchanged, and analysts had predicted $7.2 billion in capital expenditures for the quarter.
Sophie Lund-Yates, the lead equity analyst at Hargreaves Lansdown, said that “Zuckerberg is aware of the scrutiny surrounding his spending habits, and any attempts to allocate more budget to untested areas may not be received positively.” The company did not rule out the possibility of increasing capital expenditures as it works on products related to generative AI, a developing technology that can produce human-like writing, art, and other content.
While Meta is striving for cost efficiency, it must also balance the need for innovation to appeal to investors. “It’s difficult to cut corners and achieve success. Meta must navigate a fine line between maintaining operations and creating a future that inspires investors,” commented Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown. Meanwhile, Meta anticipates that operating losses for its Reality Labs division, focused on metaverse technology, will continue to grow in 2023. Despite pouring billions of dollars into the unit, it recorded a $13.7 billion loss last year.
Zuckerberg reiterated his commitment to investing in the metaverse, stating that the perception that the company is shifting away from it is inaccurate. “We’ve been concentrating on AI and the metaverse for years now, and we will keep doing so,” he said.
Meta has updated its annual expenses forecast, now predicting expenses to be between $86 billion and $90 billion, a smaller range compared to the $86 billion to $92 billion forecasted in March when it announced its second round of layoffs. The company reported a 17% year-over-year decrease in its quarterly price per ad, but it expects revenue for the current quarter to fall between $29.5 billion and $32 billion, surpassing Refinitiv’s estimated $29.53 billion.
The company exceeded analysts’ expectations for the first quarter, with a net profit of $2.20 per share, beating the anticipated $2.03 per share. Despite a year-over-year decline from $2.72 per share, the company’s revenue for the first quarter increased 3% to $28.65 billion, surpassing the average estimate of $27.66 billion.
