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Meta Platforms Inc. (previously Facebook) posted robust Q3 earnings surpassing analysts’ expectations. The solid financial performance came amidst a year of layoffs, stock price still recovering from its last year crash, and new product launches met with mixed results.
However, the stock dipped slightly despite strong earnings owing to the Israel-Hamas conflict, and its possible impact on Meta’s ad revenue.
Key Insights from Meta’s Q3 Earnings
The social media giant posted $34 billion in revenue and $11.5 billion in profits. A significant growth of 23% and 164% respectively, year-on-year for the quarter ending in September.
The financial performance far exceeded the market estimates. Earnings per share stood at $4.39, surpassing the $3.70 estimate, and more than doubled from the previous year's earnings of $1.64 a share.
Meta also saw a modest growth in its active users metrics. The daily active people (DAP) surged to 3.14 billion, up 7% year-on-year. And the monthly active people (MAP) increased by 7% as well to 3.96 billion.
The more than doubled quarterly earnings can be attributed to the increased ad impressions (31% increase year-on-year). Other contributing factors include - increased active users (both DAP and MAP up by 7%), and reduced operating costs (7% decrease).
The growth in ad revenue was largely driven by the online commerce vertical, followed by CPG and gaming. “Online commerce and gaming benefited from strong spend among
advertisers in China reaching customers in other markets,” CFO Susan Li said on the Q3 conference call.
Share Price Dips Despite the Strong Performance
Despite posting strong quarterly earnings, Meta Platforms share price saw a dip on Tuesday during the earnings call.
The dip was mainly because of anticipated demand softening owing to geopolitical conflicts in the Middle East.
Even though Meta does not have direct revenue exposure to Israel and the Middle East, CFO Susan Li said, the company has been observing softer ad spend correlating with the start of the conflict. Regional conflicts affect ad spend and soften demand, which was also observed during the start of the Ukraine war.
In short, due to the volatile geopolitical climate and Meta’s softer demand anticipation in Q4, the stock price saw a small dip.
Meta’s Outlook and Strategy for Q4 and 2024
Meta gave a revenue guidance of $36.5-40 billion for the fourth quarter of 2023. Typically, the fourth quarter is the highest earning quarter for Meta. The wide range in revenue outlook is due to the slowing demand amidst the Israel-Hamas conflict.
For the year 2024, Meta plans to continue to invest in AI, both in its engineering and compute resources; increase headcount to manage their hiring backlog; invest in their AI-driven tools for feed recommendations, reels, ads, and integrity systems; and a long term focus on metaverse.
“.. in addition to AI, our other major long term focus is the metaverse”, said Mark Zuckerberg, CEO of Meta, on the Q3 conference call with analysts.
Reality Labs, Meta’s virtual reality and augmented reality business segment, faced an operating loss of $3.7 billion for the quarter. The company expects the operating losses to increase further. Meta is increasing their product development efforts in the AR/VR space.
Threads, Meta’s social networking platform launched in July (as a competitor to X), had already amassed just under 100 million monthly active users in under 3 months. While there are mixed opinions about its usage, the company is positive about Threads. In addition, Meta is hopeful to achieve its vision for Threadsin a few more years.
Challenges and the Road Ahead
While the company’s financial trajectory looks promising, and the stock has given excellent returns for the year so far (up 142% YTD), it is not without its challenges and roadblocks.
- Regulatory concerns: Meta Platforms is currently embroiled in a dispute with the Federal Trade Commission. The FTC is seeking to substantially modify existing consent orders and impose additional restrictions.
- User well-being: Growing concerns over the social media impact on young people's mental health. Necessitating a more comprehensive approach by the company’s platforms.
- Legal disputes: A small British software company has issued notice to Meta to stop using the name Threads in the UK. The software company owns the trademark, resulting in a copyright battle.
Impact on the Broader Tech Ecosystem
Meta is a tech giant dominating the social media space today. The company's actions, whether in terms of product innovations or strategic decisions, are going to create ripples across its ecosystem.
The company had a series of layoffs and eliminated 10,000 roles in the last year. The outstanding financial performance for this quarter implies - the layoffs did not have any impact on its business. Rather, quite the opposite.
While the company plans to hire more in the coming year, the layoff and the following financials might have the unintended consequence of - the tech ecosystem taking a ‘less is more’ approach towards employee headcounts.
On the investment front, Meta’s focus on AI and metaverse can attract more stakeholders. Be it in the form of investments or user engagement. The social media giant’s huge focus and increased capex can shape the industry further down the road.
On the other end, regulatory challenges and increased privacy and consent restrictions can hamper Meta’s growth. With tightening regulations from the FTC and EU regulatory bodies, the company’s platforms are bound to face roadblocks.
Conclusion
Meta’s strong quarterly financial performance comes amidst the rising geopolitical tensions. While their social media platforms continue to face regulatory challenges, the management’s optimism on AI and metaverse can perforate to the tech ecosystem and might see increased industry traction.
Sources
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