One look at its first-quarter results released last week, and Facebook’s parent company Meta seems to have bounced back – mostly. On the one hand, the Zuckerberg-led company posted earnings of USD 7.47 billion, or USD 2.72 per share, that beat analyst expectations of USD 2.56 a share, sending shares up by 20 per cent in after-hours trading. On the other hand, it also reported the slowest sales growth in a decade and cut down its revenue guidance. Since its past quarterly results in February, Meta has lost half its value after it reported a decline in daily active users for the first time ever. Aside from Meta’s investments in its long-term metaverse ambitions, Meta was weighed down by increased competition from platforms like TikTok and a change in Apple’s privacy regulations.
Reality Labs, Meta’s business segment that produces the AR and VR for its Oculus headsets and metaverse platforms like Horizon Worlds, reported a revenue of USD 695 million, with an increase of up to 30.1 per cent on a yearly basis. The company incurred losses from its operation of less than USD 3 billion. Founder and CEO Mark Zuckerberg believed that the company would be much better than its competitors at monetising their version of the metaverse. However, he also warned that they were currently just laying the groundwork for 2030.
Source: Meta
Factors for projection of slow growth
For the next quarter starting June, Meta has issued a revenue forecast of USD 28 billion, lower than the USD 30.7 billion that was forecast by analysts. In a conference call with analysts, founder and CEO Mark Zuckerberg discussed the reasons behind the flattening in growth, like the challenges involved in moving its engagement towards new features like Reels, which do not generate as much ad revenue as other formats. Meta has also blamed the slowdown in growth on its suspension of services in Russia, which has led to a loss in subscriber revenue. Meta, on its part, has banned advertisers in Russia from running ads anywhere in the world.
Meta’s mixed results were right after tech companies reported earnings, like Google, which reported lower-than-expected sales and earnings, and Snapchat’s parent company Snap, which warned of a “challenging operating environment,” referring to the Russia-Ukraine war and rising inflation levels.
Source: FactSet, Meta’s Daily Active Users (DAUs) over the years
Source: Twitter, Fundraisers via Instagram reels
Focus on AI
Senior executives said that the company was investing significantly in its AI infrastructure to improve its content discovery capabilities. According to Zuckerberg, progress in its AI recommendation systems would drive more of their feeds rather than just social content. But eventually, the company planned to use the AI it was building not just for recommendations for short videos like Reels but as a discovery engine that can show some of the most interesting content shared across all systems, like links, group posts and videos on Facebook, and photos as well as videos on Instagram. Zuckerberg said he believed that people would increasingly rely upon discovery engines for entertainment, learning and connecting with others. The company expects these investments in AI to pay off by making better recommendations, increasing returns for advertisers and consequently pushing revenue growth for Meta as well.
Source: Inside the Lab: Building for the metaverse with AI event
Apart from refining recommendations, Meta is also planning to use AI to create a more efficient advertising model. The call also elaborated on the need for developing privacy-enhancing technologies so that they can gradually reduce the amount of personal information the company has to process while still displaying relevant ads to people and measuring advertisers’ performance. In short, this will eventually make their ads more effective with less data.
Source: Meta, Net income over the years
Sheryl Sandberg, the company’s chief operating officer, noted that “AI and machine learning are crucial components of these privacy-enhancing technologies and will drive improvements over time to our ads ranking and measurement capabilities.” Zuckerberg underlined that while it would continue to invest in its AI-related tech, they are planning to slow down the pace of their investments considering the current business growth levels. At this point, it is clear that Meta seems to have only recovered because the bar was set too low. How far can its bets on AI help it and how it can manage to cut down on its expenses while building the metaverse of its dreams still – has to be seen.
