The company announces third-quarter revenue of $34.15 billion, surpassing the expected $33.56 billion, leading to a surge in shares during after-hours trading
In its third-quarter earnings report, Meta exceeded the projections of analysts, reaffirming investors’ faith in the tech company, which had previously faced turbulence over the past few years. CEO Mark Zuckerberg stated that the company achieved its “highest operating margin in two years.”
The company disclosed a third-quarter revenue of $34.15 billion, surpassing the expected $33.56 billion, marking a 23% year-over-year increase. Following this report, the company’s shares experienced an increase in after-hours trading, bolstering investor confidence. This positive outcome comes after Meta navigated through several years of uncertainty while it worked on reshaping its business model and expanding beyond its original social media-focused empire. It’s worth noting that advertising continues to be the primary driver of its revenue.
Zuckerberg noted that the total time users spent on Facebook saw a 7% increase, and the time dedicated to Instagram rose by 6%. This growth was attributed to enhancements in content recommendations, stemming from the company’s heightened focus on algorithmically suggesting content to users.
Reels, Meta’s short-form video platform, has led to a 40% increase in the time users spend on Instagram since its launch, and according to Zuckerberg, it continues to perform exceptionally well. He anticipates that engaging with businesses, likely with the assistance of artificial intelligence, will be the next key focus of their business strategy.
Much like many tech companies, Meta has made significant efforts to embrace the surging artificial intelligence trend, with a strong emphasis on AI tools in recent financial reports. The robust results in Meta’s recent report demonstrate that these endeavors are yielding substantial returns, as observed by Jesse Cohen, a senior analyst at Investing.com, who described it as an outstanding quarter for the tech company.
Cohen remarked, “Meta not only exceeded expectations in terms of both earnings per share and revenue, but it did so by a significant margin. The social media company is reaping the rewards of its expanding user base, the growing adoption of Reels, and its innovative AI initiatives.”
This report represents Meta’s most profitable quarter in years, following two previous quarters that had already outperformed expectations. Notably, this news comes on the heels of a significant legal challenge for Meta, the parent company of Instagram, Facebook, and WhatsApp. Just a day earlier, the company faced a substantial lawsuit filed by attorneys general from 41 states. These states are suing Meta, alleging that the company’s social media platforms have had a detrimental impact on the mental health of young users due to the addictive nature of these platforms.
This legal challenge is just the latest obstacle in Meta’s path, as the company has grappled with difficulties in its core advertising business amid a broader economic downturn. Additionally, there have been concerns about Meta’s ability to navigate the consequences of the extensive privacy changes implemented by Apple in 2021. These changes posed a threat to Meta’s core advertising business by limiting the amount of user data it can collect. Moreover, the company has faced the challenge of retaining users who are switching to newer platforms such as TikTok.
To address these ongoing challenges, Meta has shifted its focus away from social media and invested billions of dollars into the metaverse, its virtual reality product. In the third quarter, the segment responsible for developing its virtual reality products, Reality Labs, incurred losses of $3.7 billion and has accumulated losses exceeding $21 billion since the beginning of last year.
Despite these substantial losses, Zuckerberg reaffirmed his commitment to the metaverse project, emphasizing that it remains a significant long-term priority. He explained that Meta anticipates a significant year-over-year increase in operating losses for Reality Labs as the company continues to develop more hardware and invest in expanding the ecosystem.
In September, the company introduced the Quest 3, the latest iteration of its virtual reality headset. During a call with investors on Wednesday, Zuckerberg reported that the product has received positive early reviews and is available for purchase at a retail price of $499.
In addition to the Quest 3, Meta launched several new products in the current quarter, including its Ray-Ban smart glasses, an updated version of the model released in 2021, which has been well-received. They also unveiled an AI studio, utilizing artificial intelligence to enable businesses to customize chatbots.
In its guidance for the fourth quarter, the company projected strong revenue, suggesting that Meta might be stabilizing after a tumultuous period marked by significant layoffs, which has boosted investor confidence.
Zuckerberg mentioned on Wednesday that Meta is currently dealing with a substantial backlog of hiring and plans to increase its hiring efforts in 2024, even though the company’s long-term strategy involves reducing its headcount.
Most of the new hires will align with the company’s objective of expanding its investments in artificial intelligence, as explained by Meta’s Chief Financial Officer, Susan Li, during the call. Meta anticipates increased payroll expenses as it continues to shift its workforce composition toward more technically demanding roles.
Notably, there was limited discussion about Threads, the Twitter competitor that Meta introduced earlier this year. Although the app initially attracted 100 million sign-ups within days of its launch, it has faced questions regarding its long-term sustainability. Zuckerberg disclosed that Threads currently has “just under” 100 million monthly active users and expressed optimism about its potential to reach the company’s target of 1 billion users in “a few more years.
