Facebook parent Meta sees highest revenue growth in eight quarters driven by improved digital ad spends

Facebookparent Meta's third-quarter results has exceeded expectations, marked by its highest revenue growth in eight quarters, driven by improved digital ad spending.

In the quarter ended September 30, 2023, Meta’s net profit surged 164% to $11.6 billion (or $4.39 per share), from $4.4 billion (or $1.64 per share) in the year-ago period. Its third-quarter revenue increased 23% to $34.1 billion from $27.7 billion in the corresponding quarter last year.

The social media company issued an optimistic outlook for the fourth quarter. The firm said it expects fourth-quarter revenue to be in the range of $36.5 billion to $40 billion. Its revenue in the corresponding year-ago period was $32.2 billion.

“I've been happy with our results this year so far, and we’re planning to continue focusing on operating efficiently going forward,” Mark Zuckerberg, Meta Founder and Chief Executive Officer, said during the third-quarter earnings call, adding that the approach “creates a more disciplined and lean culture”, and “provides stability to see our long term initiatives through in a very volatile world”.

Earlier this year, Zuckerberg had introduced the management theme for 2023 as ‘the year of efficiency’. This strategy appears to be paying off as the firm witnesses growth in its digital ads business after a challenging 2022 when the company faced declining revenue for three consecutive quarters.

In the third quarter, Meta recorded its highest operating margin in two years, Zuckerberg said, adding, “I'm looking forward to carrying this product momentum and operating discipline forward.”

Focus on AI

According to the Meta chief, artificial intelligence (AI) will be the company’s biggest investment area in 2024 with emphasis on allocating resources to engineering and computing. 

“But I want to avoid allocating a lot of new headcount, so we’re going to continue deprioritising a number of non-AI projects across the company to shift people towards working on AI instead,” he said.

Zuckerberg highlighted that AI advances are driving a lot of the company's product and business performance, and he believes that Generative AI will increasingly be important going forward.

AI-driven feed recommendations have continued to boost engagement, leading to a 7% increase in time spent on Facebook and a 6% increase on Instagram this year due to recommendation improvements alone, he remarked.

The social media firm is building foundation models like Llama 2—which had more than 30 million downloads last month, as per Zuckerberg. It has 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.

In addition to AI, Meta’s other major long-term focus is metaverse—an immersive digital realm. It has been making significant investments in this area ever since Facebook rebranded itself as Meta in 2021.

During this quarter's annual Connect conference, Meta unveiled Quest 3, its first mainstream mixed reality device, along with the next generation of Ray-Ban Meta smart glasses featuring integrated Meta AI.

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 $210 million, down 26% due to lower Quest 2 sales. 

Reality Labs’ expenses were $4.0 billion, flat year-over-year as higher headcount-related expenses were offset by lower non-headcount-related operating expenses, the firm said. The unit’s operating loss marginally narrowed to $3.7 billion.

In 2022, Meta initiated several measures to pursue greater efficiency and to realign its business and strategic priorities. As of September 30, 2023, it has substantially completed planned employee layoffs. Its headcount was 66,185 as of September 30, 2023, a decrease of 24% year-over-year. This number doesn’t include a majority of the employees impacted by the multiple layoffs.

Speaking about recruitment, Zuckerberg said, “We have a sizable hiring backlog right now since part of our layoffs earlier this year included teams swapping out certain skill sets for being able to hire others, and we’re still going to be hiring for those roles going into 2024.”

Meta’s Family of Apps

Meta, which also owns Instagram and WhatsApp, said its community across the Family of Apps continues to grow. About 3.14 billion people used at least one of its apps daily in September, and approximately 3.96 billion people used at least one every month, it noted.

Facebook’s daily active users were 2.09 billion, up 5% or 101 million compared to last year. Daily active users represented approximately 68% of the 3.05 billion monthly active users in September. Monthly active users grew by 3% compared to last year.  

Speaking about Threads, the social media giant’s newest platform, Zuckerberg said, “We’re three months in now, and I’m very happy with the trajectory. There are just under 100 million monthly actives at this point, and we’re now getting to the point where we’re going to be focusing on growing the community further.”

Meta, which generates most of its revenue from advertising, witnessed growth in this area in the third quarter. Its ad revenue increased to $33.6 billion from $27.2 billion in the year-ago period.  

The social media company expects total expenses in 2023 to be $87 billion - $89 billion, down from the earlier range of $88 billion - $91 billion and foresees capital expenditure in the range of $27 billion - $29 billion, slightly exceeding the previous estimate.

Meta also provided an initial 2024 financial outlook, anticipating total expenses of $94 billion to $99 billion and capital expenditures of $30 billion to $35 billion.

“This was a good quarter for our business as our efficiency efforts are translating into improved financial results and we’re seeing momentum across our company priorities,” Meta CFO Susan Li said, adding that the firm plans to build on this work in 2024.