Meta shares soar despite a decidedly mixed quarter report

Meta made a cautious recovery on Wednesday with its first earnings report since a disastrous fourth quarter, sending shares up 13% in after-hours trading.

The company’s reported total revenue for the quarter was $27.91bn, missing analysts’ estimates of $28.20bn, according to IBES data from Refinitiv. Wednesday’s earnings are Meta’s first since a dramatic report in February, when Meta lost a record $230bn in market value after revealing that Facebook had recorded its first-ever drop in daily user numbers.

The company’s first quarter earnings for 2022 represent a slight recovery, with daily active users (DAUs) on Facebook now slightly above analyst estimates. Still, the company’s 7% revenue growth year-over-year was the smallest it has reported in its 10-year history and was down 21% from a year earlier.

“The beat on daily active users was enough to send the shorts covering and the stock surging,” said Jesse Cohen, senior analyst at Investing.com. “With that being said, it was a mixed report overall.”

The Facebook parent company is in the midst of a rebrand of its products and shake-ups to its business model. Its chief executive officer, Mark Zuckerberg, has announced the Meta will focus more heavily on the metaverse, a virtual reality platform, rather than its core social media business.

Meta’s investment in the metaverse will be slow to pay off, analysts have warned – and its costs reflect that: Reality Labs, its virtual reality research and product development sector, lost $2.96bn this period compared with $1.83bn in losses this time last year.

Zuckerberg acknowledged this in a call with investors on Wednesday, noting that investment in the metaverse differed from past product launches because virtual reality often includes hardware and has a higher barrier to entry.

“Primarily this is laying the groundwork for what I would expect to be a very exciting 2030,” he said. He added that the company was seeking to grow its userbase in the metaverse by offering a version of its virtual reality experience Horizon Worlds on computers this year.

Earlier this month Meta announced plans for monetizing the metaverse – including a creator fund to allow users to monetize their virtual reality creations. Still, adoption is low and “Meta must continue to invest to help attract developers and brands to its platform”, said Raj Shah an analyst at Publicis Sapient.

“The upside for Meta is that it still has a strong amount of cash on hand which will allow it to invest towards its vision – if it can stay the course and remain committed to that vision,” he said.

Net income from Meta’s family of apps business dropped 13% from this time last year to $11.48bn. Meta said in a guidance for quarter two, it anticipates revenue of $28bn to $30bn – slightly lower than the previous analyst estimates of $30.6bn, reflecting headwinds affecting the tech sector at large, including inflation and the war with Ukraine.

Like other social media companies, including Alphabet, Meta is reporting increased competition for users and advertising dollars from TikTok. Time on Reels – Meta’s answer to the short-form video platform – now makes up 20% of the time spent on Instagram and video makes up 50% of the time spent on Facebook, Zuckerberg said on Wednesday.

While usership for those features is on the rise, he said it was a long-term investment that was currently dragging on its profits. The company was also seeking to enhance its video algorithm systems to improve content suggestions.

“We’re focused on growing Reels as a major part of the discovery engine vision,” Zuckerberg said. “We expect this expansion and engagement to shift from a short-term headwind to a tailwind at some point.”

Reuters contributed to this report