Meta, parent of Facebook and Instagram, turned in better-than-expected earnings for the first quarter of 2023 — even as net income dropped sharply on a year-over-year basis.
Overall, the company reported revenue of $28.65 billion, up 3% from the year prior, and net income of $5.7 billion (or $2.20 per share), down 24%. Analysts on average expected Meta to post revenue of $27.65 billion and EPS of $2.03, according to Refinitiv.
And Meta issued a relatively bullish forecast for the second quarter of 2023, projecting total revenue to be $29.5 billion-$32 billion, up from $28.82 billion in Q2 2022.
In announcing Q1 results, the company said Facebook averaged 2.04 billion daily active users in March, up from 2.0 billion the prior quarter. Across all its apps, Meta reported daily active users of 3.02 billion on average for March, an increase of 5% year-over-year.
“We had a good quarter and our community continues to grow,” Meta chairman, CEO and co-founder Mark Zuckerberg said in prepared remarks. “Our AI work is driving good results across our apps and business. We’re also becoming more efficient so we can build better products faster and put ourselves in a stronger position to deliver our long-term vision.”
On the earnings call, Zuckerberg said Meta believes its Reels product is gaining share in short-form video, an area where it competes with TikTok and YouTube Shorts. He said users on Facebook and Instagram now share Reels 2 billion times per day, a figure that has doubled over the last six months. Meta has monetized Reels at lower rates than the company’s other ad units while Reels also cannibalizes time spent in the Facebook or Instagram feed; CFO Susan Li told analysts that Meta expects Reels to be “revenue neutral” by the end of 2023 or early 2024.
Zuckerberg talked up Meta’s work in artificial intelligence, which he said has been a “major investment for us.” He claimed the company now has the capacity to do “leading work” in AI “at scale.”
The company has embarked on a “year of efficiency,” as Zuckerberg has dubbed its cost-cutting initiatives. In November Meta announced layoffs eliminating 11,000 jobs and last month said it would cut another 10,000. As of March 31, the company said it had substantially completed the 2022 employee layoffs while “continuing to assess facilities consolidation and data center restructuring initiatives.” Meta incurred additional pre-tax restructuring charges of $621 million in Q1.
Meta’s total costs and expenses in the first quarter were $21.42 billion, up 10% year-over-year. That included a $1.14 billion restructuring-related charge in Q1.
Zuckerberg changed the name of the company from Facebook to Meta in October 2021, signaling a shift toward “metaverse” products and services. But so far, Meta’s Reality Labs business, which includes its Quest VR headsets, has seen losses pile up. In Q1, the Reality Labs segment generated $339 million in revenue (down 51%) and an operating loss of $3.99 billion (an increase of 35%).
Meta isn’t dialing back its investment in VR or AR products in favor of AI, according to Zuckerberg. “We’ve been focusing on both the metaverse and AI for years, and we will continue to focus on both,” he said on the call. Meta still expects to launch a next-generation Quest VR headset aimed at consumers with an affordable price point later in 2023.
In 2022, Meta’s stock dropped 64%, shedding some $620 billion in market value — but it has rebounded strongly this year, up 68% year to date as of market close Wednesday. After reporting Q1 results, Meta shares were up more than 12% in after-hours trading.
