Meta reports strong revenue growth but warns of advertising headwinds

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Meta, the parent of Facebook and Instagram, more than doubled profits and booked record sales in the third quarter, but warned of continued macroeconomic uncertainty and lower advertising demand in the current quarter.

In what he has labelled a “year of efficiency”, Meta’s chief executive Mark Zuckerberg has cut jobs and reduced costs in a bid to revive the company from a period of sluggish growth and investor concern over his costly bet on the metaverse, which has yet to bear fruit. Net income in the third quarter jumped 164 per cent to $11.6bn, well above the consensus forecast for $9.4bn.

Revenues also rose 23 per cent to $34.1bn compared with the same period last year, above analyst expectations of a rise to $33.4bn. It was also Meta’s highest quarterly sales figure since it went public in 2012.

However, chief financial officer Susan Li warned that the company was “seeing more volatility at the start of the quarter”.

She added that while Meta did not have “material direct revenue exposure” to Israel and the Middle East, it had observed “softer ad spend” in the current quarter, correlating with the start of the Israel-Hamas conflict.

Meta expects fourth-quarter 2023 revenues of between $36.5bn-$40bn, against analyst consensus of a rise to $38.9bn, according to S&P Capital IQ. Li added that the fourth-quarter outlook “reflects the greater uncertainty and volatility in the landscape ahead”.

In an analyst note, Jefferies’ Brent Thill said Meta’s fourth-quarter revenue guidance “was an uncharacteristically wide range and suggests a potential slowdown at the midpoint”.

Meta shares originally rose about 4 per cent in after-hours trading, before backtracking and ending about 3 per cent lower.

The news comes a day after shares in smaller social media rival Snap fell 5 per cent after it warned that the Israel-Hamas conflict had caused some of its advertisers to pause spending, hurting its revenues in the current quarter.

On an otherwise upbeat call with investors, Zuckerberg signalled the platform would continue restructuring to focus on artificial intelligence.

He said that investments in AI had improved its content recommendation and advertising targeting capabilities, and touted Meta’s other initiatives — including the recent launch of AI assistants on its messaging platforms and the commercial version of its own large language model, Llama 2.

“In terms of investment priorities, AI will be our biggest investment area in 2024 for both engineering and compute resources,” he said, adding: “We’re going to continue deprioritising a number of non-AI projects across the company to shift people towards working on AI.” He said he planned to “continue focusing on operating efficiently”.

Meta said that expenses would rise in the year ahead — predicting a range of between $94bn-$99bn in 2024, compared with a range of between $87bn-$89bn expected in 2023. 

This would be driven by higher infrastructure costs, Meta said, as it continues to invest in data centres and servers supporting AI and the metaverse. It added that it also expected higher payroll expenses as it staffed up again in priority areas, shifting its “workforce composition toward higher-cost technical roles”.

For Reality Labs, its virtual and augmented reality department, it anticipated operating losses to “increase meaningfully year-over-year” as it scales the metaverse investment with little short-term revenue boost.

Meta is the latest Silicon Valley company to report in what has been a mixed quarter for tech groups. Microsoft posted an unexpected financial boost from its own AI investments, but shares in Google parent Alphabet lost more than 9 per cent after its cloud computing revenue missed analyst expectations.