Meta Platforms Warns of Macroeconomic Dependence Amid Upbeat Earnings Report

Meta Platforms, formerly known as Facebook, delivered an optimistic earnings report for the third quarter but cautioned investors about the macroeconomic factors influencing its advertising business. The company’s financial results showed strength, with third-quarter sales of $34.2 billion, surpassing analysts’ estimates of $33.5 billion. Despite this positive performance, the market reacted with a 3% drop in Meta’s share prices during extended trading.

Chief Financial Officer Susan Li emphasized the influence of the macroeconomic environment on the company’s revenue outlook for 2024. She noted, “We are very subject to volatility in the macro landscape, and the revenue outlook is uncertain for 2024.” This acknowledgment of external factors affecting the company’s financial health tempered the initial excitement over its earnings report.

Meta had previously faced challenges in its advertising business, prompting a series of cost-cutting measures earlier in the year. This involved layoffs and a strategic focus on enhancing advertising and algorithms using artificial intelligence. The concept of the metaverse, the virtual reality world, which Meta’s CEO Mark Zuckerberg rebranded the company for, appeared to take a backseat, especially in light of a skeptical investor community.

The core advertising business at Meta has demonstrated a return to growth, thanks in part to the promotion of short-form videos, known as Reels, on Instagram and Facebook. However, advertisers have been adjusting to this new format, contributing to uncertainties about the future of Meta’s advertising revenue.

While investors have been monitoring the company’s spending on projects related to virtual reality and artificial intelligence, Meta announced a reduction in spending expectations for 2023. Operating margins have expanded significantly, rising from 20% in the same period last year to 40%. Third-quarter earnings per share reached $4.39, compared to $1.64 the previous year.

Looking ahead to 2024, Meta foresees expenses rising to a range of $94 billion to $99 billion. The bulk of this spending will be allocated to the expansion of technology infrastructure for advanced AI and VR tools, as well as the hiring of additional personnel for high-cost technical roles to support product development.

Meta’s approach to the AI field stands out from its Big Tech peers, as the company often shares its research and large language models freely with developers. This open strategy aims to accelerate technological advancement. At a developer conference in September, Meta introduced generative-AI features, including chatbots and image-editing tools for platforms like Instagram and Facebook.

Mark Zuckerberg expanded his commitment to the metaverse at the event, encompassing augmented reality that overlays computer-generated images on the real world. Meta unveiled an updated version of smart glasses in partnership with Ray-Ban and introduced the Quest 3 VR headset.

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In the earnings report, Meta disclosed that Reality Labs, the division responsible for smart glasses and headsets, reported an operating loss of $3.7 billion on $210 million in revenue, which exceeded analysts’ expectations.

Despite the caution about macroeconomic factors, Meta’s overall monthly user base increased by 7% to 3.14 billion in the last quarter, surpassing analysts’ estimates of 3.05 billion. This growth demonstrates the enduring popularity of the social media platform.

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