Meta restores revenue growth as newer ad formats show promise

Meta returned to revenue growth in Q1 following three successive quarters of decline after recording a healthy bump in users and growing its newer ad formats.

Revenue grew 3% annually to $28.6 billion in the first three months of the year, while advertising revenue lifted 4% to $28.1 billion.

Daily active users across Meta’s apps surpassed 3 billion in the quarter and monthly active users hit 3.81 billion, both representing a 5% year over year increase. Facebook daily active users increased 4% to 2.04 billion, with monthly users growing 2% to 2.99 billion.

Chief executive Mark Zuckerberg told investors on Wednesday that “a lot of our results” were driven by the company’s investments in artificial intelligence, which is gaining more control over the content that is surfaced across Meta’s apps.

Zuckerberg said AI now recommends more than 20% of the content that appears in users’ Facebook and Instagram feeds. The proportion rises to 40% when looking solely at Instagram.

The technology has proven effective at increasing time spent and improving monetisation, Zuckerberg said. For example, AI recommendations within Meta’s short form video product Reels have driven a more than 24% increase in time spent on Instagram since the product first launched, he claimed.

Meta said it made progress closing the monetisation gap of Reels, which has been cannibalising revenue the company can generate from its other products for several quarters. Chief financial officer Susan Li said Reels was on track to be “revenue neutral” by the end of the year or early next year.

The tech firm is luring in advertisers with new “Click to message” ad formats, which direct users to Messenger and WhatsApp business accounts or Instagram direct messages. Li said the “Click to message” products allow Meta to both diversify revenue and grow its first party data.

“It is both a first party data ads format, which I think in a signal challenged landscape is important for us, and then, of course, it's a way for us to both monetise messaging behavior that's happening on our platform, and create robust avenues of communication for businesses directly with their consumers, which we hope to broaden with broader business messaging offerings over time,” Li said.

Investors were also impressed by Meta’s aggressive cost-cutting exercise, after Zuckerberg declared 2023 as “the year of efficiency,” in March. 

This has involved cutting 10,000 employees, which Meta expects to cost it $1 billion in severance throughout 2023, as well as slashing underperforming or non priority projects.

Meta narrowed its cost outlook range for the year to between $86 to $90 billion, down from the $89 to $95 billion it had forecast in March.

Zuckerberg said the efficiency drive will continue “even as our financial position improves.”

The financial turnaround sent Meta stock soaring more than 11% in after-hours trading.

‘Remain committed to the metaverse’

While the majority of Zuckerberg’s opening remarks to investors on Wednesday centered around AI, which has swiftly become the hottest technology in big tech, the CEO told investors he remained committed to concurrently building the metaverse.

“A narrative has developed that we're still moving away from focusing on the metaverse division. So I just want to say up front that that's not accurate,” Zuckerberg told investors. “We've been focusing on both AI and the metaverse for years now, and we will continue to focus on both.”

Meta continues to lose billions on its metaverse ambition. The Reality Labs division, responsible for its AR and VR technology, posted a loss of $4 billion in Q1, while the revenue it generated halved YoY to $339 million.

Meta is due to release a mixed reality headset later this year.

As AI becomes more integrated into the internet experience, Zuckerberg said he favored an open source approach to development, which "makes it easier for other companies to integrate with our products and platforms as we enable more integrations."