Facebook-parent Meta beats revenue estimates on digital ad strength

Meta Q3 results 2023: Meta Platforms (META.O) beat expectations for third-quarter profit and revenue on Wednesday, helped by its ongoing austerity drive and a recovery in digital advertising spending ahead of the holiday season. The owner of social media platforms Facebook and Instagram, which reported its best operating margins in two years, also trimmed expenses for the year.

But the company forecast 2024 spending that will exceed Wall Street estimates, as it pushed hiring needs from this year to the next and continued to invest in AI infrastructure. It also suggested the conflict in Israel and Gaza could dampen fourth-quarter sales. Shares of Meta, which have risen nearly 150 per cent so far this year, flip-flopped in after-hours trading, initially gaining 3 per cent before reversing to trade 3 per cent below the closing price two hours later.

Meta, which also owns WhatsApp, has been climbing back from a bruising 2022, when investors fled as the company spent billions on the metaverse - the shared virtual world environments which people can access via the internet - amid competitive pressures and a post-pandemic slump in digital ads. It has shed 21,000 employees since autumn 2022, particularly in non-engineering roles. The company is keeping focus on engineering talent as it makes plans to rev up hiring again next year, executives said.

CEO Mark Zuckerberg, who promised in February that 2023 would be Meta's "year of efficiency," told analysts on a conference call that artificial intelligence would constitute the top investment priority for 2024. The company will de-prioritize a number of non-AI projects to avoid adding too much headcount, he said, without providing specifics. Zuckerberg said a lean company culture provided stability for Meta to "see our long-term initiatives through in a very volatile world."

Meta planned to end 2024 with "meaningfully higher" headcount than its approximately 66,000-person workforce as of the end of September, CFO Susan Li said. Meta's operating margin in the third quarter doubled to 40 per cent. Revenue grew at the quickest pace in two years as well. Total 2023 expenses were cut to a range of $87 billion to $89 billion, from a previous range of $88 billion to $91 billion.

The social media company said it expected 2024 total expenses in the range of $94 billion to $99 billion, higher than estimates, according to LSEG data. It declined to give new explanations for the expenditures, citing the same higher AI infrastructure investments, hiring plans and expected losses on its metaverse-oriented Reality Labs unit as in the previous quarter.

The company has been scrambling to update its data centers after falling behind adopting AI-friendly hardware and software systems. It said 2024 capital expenditures would be in the range of $30 billion to $35 billion, with growth due to investments.

RESILIENT ADVERTISING

Advertisers banking on resilient consumer spending flocked to the social media company's digital platforms ahead of the holiday shopping season, a rebound that also boosted ad sales at Alphabet <GOOGL.O> and Snap (SNAP.N). In the third quarter ended Sept. 30, Meta's ads viewed increased by 31 per cent from a year earlier. The average price per ad decreased by 6 per cent, but the pace of fall was the slowest in seven quarters.

The company forecast fourth quarter revenue between $36.5 billion and $40 billion, in line with analyst expectations. "The anticipated global surge in digital ad spending, poised to hit $667.6 billion next year, combined with Meta's effective execution and cost control, puts the company on strong footing," said Insider Intelligence principal analyst Jeremy Goldman.

However, Meta reported "softness" in ad spending at the beginning of the fourth quarter that appeared to be related to the start of the conflict between Israel and Hamas. Li said the impact was captured in the company's fourth-quarter outlook. Meta also warned again on regulatory pressures ahead, specifically a plan by the Us privacy regulator to toughen a 2019 order to include a ban on making money from minors' data.

Revenue rose 23 per cent to $34.15 billion for the quarter ended September. Analysts were expecting revenue of $33.56 billion, according to LSEG data. Meta's daily active people (DAP) grew by 7 per cent. The company uses the metric to track unique users who used any one of its apps such as Facebook, Instagram, Messenger or WhatsApp in a day. DAP also grew by 7 per cent in the preceding June quarter. Facebook's daily active users grew by 5 per cent, while ad impressions across Meta's apps grew 31 per cent.