Facebook parent Meta beats Q2 estimates, posts 11% revenue growth

Facebookparent Meta reported double-digit revenue growth in the second quarter of 2023 for the first time since Q4 2021 and issued optimistic guidance for the ongoing quarter, resulting in a 7% surge in its stock during after-hours trading.

In the quarter ended June 30, 2023, Meta’s revenue surged 11% to $32 billion, from $28.8 billion in the corresponding quarter last year. Its net profit in the second quarter rose 16% to $7.8 billion (or $2.98 per share), from $6.7 billion (or $2.46 per share) in the year-ago period. 

The social media company issued an optimistic outlook for the third quarter. The company said it expects third-quarter revenue to be in the range of $32-34.5 billion. Its revenue in the corresponding year-ago period was $27.2 billion. 

Commenting on the second quarter results, Mark Zuckerberg, Meta Founder and Chief Executive Officer (CEO), said, “We had a good quarter. We continue to see strong engagement across our apps and we have the most exciting roadmap I've seen in a while with Llama 2, Threads, Reels, new AI products in the pipeline, and the launch of Quest 3 this fall.”

The Meta chief reiterated the firm’s management theme for 2023—the Year of Efficiency, with two goals: becoming an even stronger technology company, and improving its financial results so it can invest aggressively in its ambitious long-term roadmap. 

“Now that we've gotten through the major layoffs, the rest of 2023 will be about creating stability for employees, removing barriers that slow us down, and introducing new AI-powered tools to speed us up,” he noted.

Over the next few months, the company will begin planning for 2024, maintaining a focus on running the company “as lean as possible” despite the improved financial results.

Zuckerberg emphasised that the “two major technological waves” driving Meta’s roadmap are “AI in the near term” and "the metaverse over the longer term”.

Meta is building leading foundation models to support a new generation of AI products, alongside creating a range of new products using Llama that will be compatible across its services, Zuckerberg said, adding that he’s going to share more details later this year.

Recently, the company partnered with Microsoft to open source Llama 2, the latest version of its large language model, and make it available for both research and commercial use.

Amidst the various AI-related developments, Meta is also assessing the optimal level of AI capital expenditure required to support its roadmap.

“As our investments in AI continue, we remain fully committed to the metaverse vision as well,” Zuckerberg said, adding that the firm has pursued these two major priorities, and they have become increasingly intertwined and mutually supportive. 

Meta plans to provide further insights into its metaverse and AI endeavours while unveiling the Quest 3 mixed reality headset, its most advanced headset, during the Connect conference at its headquarters in Hacker Square on September 27.

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Facebook, which rebranded itself as Meta in 2021, is focused on bringing the metaverse, an immersive digital realm to life, and is making significant investments in this area. 

The revenue of its Reality Labs, which has researchers, developers, and engineers working on virtual reality and augmented reality gadgets and its metaverse vision, was $276 million, down 39% due to lower Quest 2 sales.

Reality Labs’s expenses were $4.0 billion, up 23% due to a reduction in the unit's loss reserves in Q2 of last year as well as growth in employee-related costs, the firm said. The unit’s operating loss marginally widened to $3.7 billion.

Last year, Meta initiated several measures to pursue greater efficiency and realign its business and strategic priorities. As of June 30, 2023, the company said it has substantially completed planned employee layoffs. It incurred restructuring charges of $780 million in the second quarter of 2023. 

Meta’s total restructuring charges recorded under its Family of Apps segment was $705 million and the Reality Labs segment was $75 million during the second quarter of 2023. 

Its total costs and expenses in the second quarter, including accrued legal expenses and restructuring charges, were $22.6 billion, an increase of 10% year over year.  

The social media firm has announced multiple rounds of planned layoffs to reduce its workforce. Its headcount was 71,469 as of June 30, 2023, a decrease of 14% year-over-year. This number includes half of the employees who would be impacted by the 2023 layoffs.

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Meta’s Family of Apps 

Meta, which also owns Instagram and WhatsApp, said its community across the Family of Apps continues to grow. About 3.07 billion people used at least one of its apps daily in June, and approximately 3.88 billion people used at least one every month, it noted. 

Facebook’s daily active users were 2.06 billion, up 5% or 96 million compared to last year. Daily active users represented approximately 68% of the 3.03 billion monthly active users in June. Monthly active users grew by 2% compared to last year. 

Speaking about Threads, the social media giant’s newest platform, Zuckerberg said, “I'm quite optimistic about our trajectory. We saw unprecedented growth out of the gate and more importantly we're seeing more people coming back daily than I'd expected.” 

He added that the firm now focused on retention and improving the basics, followed by growing the community to its full potential before working on monetisation—a playbook that has been used on its other platforms.

Meta, which generates most of its revenue from advertising, witnessed growth in this area in the second quarter. Its ad revenue increased to $31.5 billion from $28.2 billion in the year-ago period. 

The social media firm anticipates its full-year 2023 total expenses to be $88 billion - $91 billion, increased from its prior range due to legal-related expenses recorded in the second quarter of 2023. It expects capital expenditure to be in the range of $27 billion - $30 billion, lowered from our prior estimate. 

“Looking ahead, while we will continue to refine our plans as we progress throughout this year, we currently expect total capital expenditures to grow in 2024, driven by our investments across both data centres and servers, particularly in support of our AI work,” Meta CFO Susan Li said.

(The article was updated to add more details)