Facebook parent posts its slowest revenue rise since IPO

Facebook parent Meta reported the slowest revenue growth in a decade but a rebound in users has boosted profits, sending the shares higher in after hours trading.

Meta’s Mark Zuckerberg. The shares soared more than 18 per cent in after hours trading after profits topped analyst forecasts. Picture: Michael Nagle/Bloomberg via Getty Images

Facebook parent Meta Platforms added more users than expected but posted its slowest revenue growth since going public a decade ago, as the company navigates growing competition and privacy headwinds for its advertising business.

The user numbers were a surprise for the tech giant. In the wake of poor earnings results from other digital-ad rivals earlier this week, investors had feared the worst, and on Wednesday they pushed Meta shares up more than 18 per cent after results were announced.

The company cited the war in Ukraine as a contributor to the revenue slowdown, among other factors.

Meta’s stock price was battered in February when it posted quarterly results that showed a sharper-than-expected decline in profits, a gloomy revenue outlook and a dip in its daily active users.

Before Wednesday, Meta shares had fallen nearly 44 per cent and the company had lost nearly $US400bn in market value.

Meta executives including Chief Executive Officer Mark Zuckerberg on Wednesday cited several efforts to reverse those trends. To combat rival TikTok, which Mr Zuckerberg has cited as a rising threat, the company said it would more actively use artificial intelligence to recommend content to users from around the social network, as opposed to populating their feeds mostly with posts from friends and family. That in effect means Facebook will function more like TikTok’s For You feed, which serves users content based on their interests as determined by the company’s algorithm, not the accounts they follow.

Meta had previously expanded the availability of its own short-form video format, known as Reels.

Mr Zuckerberg said the company’s artificial intelligence will serve as a “discovery engine that can show you all of the most interesting content that people have shared across our system.” One highlight for Meta was its Reality Labs unit, which is central to its long-term plans. Reality Labs develops VR headsets, AR glasses and virtual worlds, known as the metaverse, in which users can live and work.

The unit’s revenue came in at $US695m, ahead of the $US683 million analysts were expecting. The unit lost nearly $US3bn, up from $US1.8bn a year prior as the company ramps up its investments in those areas. Analysts had been expecting a loss of $US3.6bn.

The company has warned that building the metaverse would take many billions of dollars and several years of work but Mr Zuckerberg said that level of investment will start to slow.

He said Horizon Worlds, which is a virtual-reality world of legless avatars, will be the centrepiece of the company’s metaverse strategy. The company plans to launch a web version of Horizon Worlds later this year in an effort to grow user adoption of the service, Mr Zuckerberg said.

Meta’s advertising revenue for the first quarter was $US27.9bn, up 6.6 per cent compared to a year prior. Analysts had predicted Meta’s advertising revenue would rise to $US28.3bn in the first quarter of 2022.

The revenue growth marked the lowest pace since the company went public in 2012, signalling the impact that ad-tracking changes introduced by Apple last year have had on its advertising business. The company had warned that those changes would cost Meta some $US10bn in 2022.

Meta reported net income of $US7.5bn, compared with analysts’ expectations of $US7.1bn.

Facebook’s user base grew to 1.96 billion daily active users, up from 1.93 billion reported in February. Analysts had expected Meta to report an uptick in Facebook’s daily users to 1.95 billion. In the prior quarter, Facebook’s daily active user base fell by two million users, which was the first time the company had reported a decline in users.

Meta also forecast that it is expecting revenue between $US28bn and $US30bn for the second quarter, shy of the $US30.7bn expected by analysts, according to FactSet.

Meta’s earnings indicate continued turbulence for the digital-ad business. Social media rival Snap posted its first-quarter results last week, showing that its business is continuing to feel the sting from Apple’s privacy changes. Google parent Alphabet on Tuesday also posted slower sales growth as global economic turmoil disrupted digital-ad spending.

Facebook daily user base in the US and Canada grew to 196 million, from 195 million at the end of the previous quarter. In Europe, Facebook’s daily active users fell from 309 million at the end of the prior quarter to 307 million.
The Wall Street Journal