It couldn’t get much worse for Meta Platforms Inc. than when it lost $230 billion in market value in February after reporting its first-ever drop in daily users, but today the Facebook parent actually managed to show surprising improvement, sending its stock soaring in late trading.
Meta, which rebranded itself in October in the hope of leading a virtual reality-fueled metaverse, reported today that its first-quarter profit fell 21%, to $7.5 billion, or $2.72 a share, on a 7% increase in revenue, to $27.9 billion.
Analysts had expected a profit of $7.1 billion, or $2.56 a share, on revenue of $28.3 billion. So although revenue fell a bit short, to the slowest growth rate in a decade, earnings exceeded forecasts.
One key metric, daily active users on Facebook — which helped tank the stock three months ago — showed some recovery and likely drove the stock higher in late trading. It rose 4% from a year ago, to 1.96 billion people, a tad better than analysts’ consensus of 1.95 billion people. Another key measure, “family monthly active people” across Facebook, Messenger, Instagram and WhatsApp, rose 6%, to 3.64 billion, just under a Wall Street forecast of 3.7 billion.
Meanwhile, Meta’s bet on the future, its former Oculus virtual reality headsets it now calls Meta Quest, continues to lose a lot of money, as the Reality Labs unit lost $2.96 billion, up from $1.83 billion a year ago, on revenue of $695 million, up from $534 million a year ago.
Meta said it expects second-quarter revenue to be in the range of $28 billion to $30 billion, short of analysts’ forecast of $30.5 billion. It cited “a continuation of the trends impacting revenue growth in the first quarter, including softness in the back half of the first quarter that coincided with the war in Ukraine.”
Investors may also have been cheered somewhat by a more positive outlook on costs. It cut expected total projected expenses for this year to a range of $87 billion to $92 billion, from a previous outlook of $90 billion to $95 billion.
Meta’s shares jumped more than 14% in extended trading after the report. They had fallen about 3%, to $174.95 a share, in the regular session as investors likely looked at yesterday’s earnings shortfall at Alphabet, which also gets most of its revenue from advertising. Meta shares fallen a stunning 44% since the Feb. 2 earnings report.
“We made progress this quarter across a number of key company priorities and we remain confident in the long-term opportunities and growth that our product roadmap will unlock,” Chief Executive Mark Zuckerberg (pictured) said in prepared remarks.
Even as it spends billions of dollars to pursue the metaverse opportunity, Meta faces unprecedented upheaval in its core advertising business. Zuckerberg warned last quarter that Apple Inc.’s new privacy rules, which keep Meta and other companies from collecting user data employed in targeted advertising, could cost the company $10 billion in lost sales this year.
Another challenge is that Facebook’s short-form video service Reels isn’t making money yet, and Chief Financial Officer David Wehner has warned that it’s not likely to make as much as the News Feed and Stories. Not least, Facebook and its sister service Instagram are seeing intense competition from the likes of TikTok.
“Meta is walking a tightrope this year as it tries to navigate behavioral shifts from consumers toward more short-form video and community messaging, which are affecting its traditional advertising business, while simultaneously sinking an enormous amount of money into developing its version of the metaverse,” said CCS Insights Chief Operating Officer Martin Garner.
More to come as a scheduled 2 p.m. EDT conference call with analysts begins.