Meta shares rise after Facebook outperforms user growth

Facebook rebounded from a dip in users earlier this year, and its parent company Meta posted a profit that beat Wall Street’s targets and defied low investor expectations with an earnings report that sent shares up 20 percent.

eta CEO Mark Zuckerberg also said the company would cut costs and invest in artificial intelligence tools to improve recommendations and ads.

Its shares rose 19 percent in after-hours trading on Wednesday.

Meta’s earnings comfortably beat Wall Street targets of $2.72 per share, according to Refinitiv’s IBES data, compared to a median analyst estimate of $2.56. Earnings were mitigated as Meta reported its slowest revenue growth in a decade.

According to Refinitiv’s IBES data, daily active Facebook users (DAU), a key metric for advertisers, came in at 1.96 billion, slightly above the 1.95 billion estimate. Monthly active users came in at 2.94 billion, missing Wall Street’s estimates by 30 million.

Meta has lost about half its value since the start of the year, following a dismal February earnings report when Facebook’s daily active users declined for the first time and was forecast for a dismal quarter, citing ongoing factors such as Apple’s privacy changes and rising platform competition blamed for it like TikTok by ByteDance.

“It’s good news that Meta somehow managed to push through on DAU’s growth. It had to show some kind of reversal from last quarter’s performance,” said Debra Williamson, an analyst at Insider Intelligence.

“However, monthly active user growth is slowing down quickly. A few quarters ago, markets could be relied on to develop to keep the growth engine going, but it’s likely that even those growth opportunities are beginning to dry up,” she said.

Total revenue, which largely comes from ad sales, rose 7 percent to $27.91 billion in the first quarter, but missed analyst estimates of $28.20 billion, according to Refinitiv’s IBES data.

In a conference call with analysts on Wednesday, Chief Financial Officer Dave Wehner cited factors including a slowdown in e-commerce after rapid growth during the Covid-19 pandemic, as well as falling sales in Russia and lower ad demand amid global economic uncertainty.

On the conference call, Zuckerberg also reiterated earlier warnings about the challenges of shifting engagement to features like its short video offering, Reels, which generates less revenue than other ad formats.

Russia banned Facebook and Instagram in March and found Meta guilty of “extremist activities” amid Moscow’s crackdown on social media during its invasion of Ukraine. Meta’s messaging service WhatsApp is not affected by the ban. Meta has also banned advertisers in Russia from creating and serving ads anywhere in the world.

Meta forecast sales of between $28 billion and $30 billion for the second quarter. On average, analysts were expecting sales of $30.63 billion for the current quarter. The company said its outlook reflects factors such as the war in Ukraine and said it is monitoring the potential impact of regulatory action in Europe.

Recent earnings reports from Google parent Alphabet Inc and Snap Inc have signaled the impact of the global economic turmoil on digital advertising spending amid rising inflation and geopolitical uncertainty.

“I think post-Google expectations were just the absolute worst,” said Rick Meckler, a partner at Cherry Lane Investments, a family-owned investment firm in New Vernon, New Jersey. “When they came in with earnings per share above estimates, the people who had been shorting the stock and those who had… given up decided to get back in.”

Meta lowered its expected total spending for 2022 to $87 billion to $92 billion, down from its previous guidance of $90 billion to $95 billion.

Company executives said on the conference call that Meta is making significant investments in AI and machine learning to improve ad capabilities as it grapples with the impact of Apple’s changes to its operating system, which have made it difficult for brands to target their ads and measure Facebook and Instagram.

However, Zuckerberg also said that Meta’s current business growth is slowing the pace of some longer-term investments in its AI infrastructure and Reality Labs’ hardware division, which houses its augmented and virtual reality efforts

Meta generated quarterly revenue of $695 million for Reality Labs’ hardware division. It reported $3 billion in losses from operations stemming from those Metaverse ambitions.

Zuckerberg has warned that it will take Meta billions of dollars and several years to achieve its goals around building the Metaverse, a futuristic idea of ​​virtual environments where users can work, socialize and play.