Meta headwind flip: advertising revenue grows significantly, meta-universe does not smell good anymore volume AI
May 3rd, 2023

Before today's earnings report, many people are not optimistic about Meta's performance in the past quarter.

Revenue has declined for three consecutive quarters, social family growth almost in place, the first to open the second round of this year's 10,000 layoffs ...... especially under the sudden tide of AI, Meta's previous heavy bet on the meta-universe seems to have been forgotten in the corner.

But in such a situation of struggle on all sides, Meta this time stood out as a dark horse and delivered a bright report card. Not only has Meta reversed its decline this quarter, but its AI-enabled social family has also started to revive. After Meta released its optimistic growth forecast for the next quarter, Meta's share price soared after the bell today, once surpassing 12%.

However, it is worth noting that Meta's meta-universe business not only did not grow but declined significantly this time, which may also further push Meta to tilt its strategic focus from meta-universe to AI, and the next stage of the giant melee in the AI track may be more intense.

Meta releases optimistic expectations as revenue and social family return to growth

Overall, the following information revealed in this earnings report drove the market's confidence in Meta to soar.

First, revenue and profit finally stopped falling and started to rebound. meta's revenue in the first quarter was US$28.645 billion, up 3% year-on-year, much better than the market's expectation of a year-on-year decline of over 0.8%. This compares with declines of 4% and 3% in the third and fourth quarters of last year, respectively. Diluted net income per share was $2.20, down 19% year-over-year but also well below market expectations of a 26% year-over-year decline, and a significant rebound from a 52% year-over-year decline in the fourth quarter of last year.

In addition, its social family returned to the upward curve and delivered significant growth in advertising revenue. The market has been skeptical about Meta's user growth after the first decline in social family users in the second quarter of last year. However, this quarter, the number of social family users rose again from the previous quarter, with 2.04 billion daily users and 2.99 billion monthly users, three consecutive quarters of positive growth, proving to a certain extent that Meta's social family is back on the upside.

During the quarter, advertising exposure generated by the social family grew 26% year-over-year, and overall advertising revenue reached $28.101 billion, up 4.1% year-over-year, also much better than the market's expectation of a 0.9% decline.

In addition to the above two points, this time Meta gave a very positive second quarter earnings outlook, once again clearing market concerns and pushing Meta's stock back to its highs since January 2021. Meta expects total revenue for the second quarter to be in the range of $29.5 - $32 billion, implying growth of between 2.4% - 3.8% year-over-year.

In addition, Meta's biggest competitor, TikTok, has been in a regulatory quagmire recently, which may also benefit Meta to some extent by increasing the social family's user base and user stickiness.

Meta Universe business has been hit hard by the lack of success in "burning" money

The advertising business, which is the "lynch pin", has apparently been stabilized this time, but Meta's bet on the future of the metaverse still seems to have failed to take off, and it can even be said that it is developing badly.

Since Meta's full transformation into the metaverse, the entire Reality Labs division recorded a total loss of $13.72 billion last year. And this quarter, Reality Labs again lost $3.99 billion, expanding its loss by nearly 35% year-over-year and exceeding market expectations of a 28% loss.

While this loss figure was down slightly from the previous quarter's $4.28 billion, in terms of revenue, metaverse revenue for the quarter was down by more than half from the previous quarter. While the metaverse business generated $727 million in revenue in the fourth quarter of last year, that number fell to $339 million in the current quarter, the third worst quarterly performance since 2021.

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