Meta made a cautious recovery on Wednesday with its first earnings report since the disastrous fourth quarter, sending shares up 13% in after-hours trading.
The company’s total revenue for the quarter was $ 27.91 billion, missing analyst estimates of $ 28.20 billion, according to IBES from Refinitiv. Wednesday’s gains are Meta’s first since a dramatic report in February, when Meta lost a record $ 230 billion in market value after revealing that Facebook had registered its first drop in the number of daily users.
The company’s earnings for the first quarter of 2022 represent a slight recovery, as the daily active users (DAU) on Facebook are already slightly above analysts’ forecasts. However, the company’s revenue growth of 7% on an annual basis is the smallest it has reported in its 10-year history and is 21% less than a year earlier.
“The blow from daily active consumers was enough to cover shorts and increase stocks,” said Jesse Cohen, a senior analyst at Investing.com. “Given this, the report was generally mixed.”
Facebook’s parent company is in the midst of rebranding its products and changing its business model. Its CEO Mark Zuckerberg has announced that Meta will focus more on the metaverse, a virtual reality platform, rather than on core social media business.
Meta’s investment in the metaverse will pay off slowly, analysts warn – and its costs reflect that: Reality Labs, its virtual reality research and development division, lost $ 2.96 billion during the period compared to losses of 1 , $ 83 billion during that period last year.
Zuckerberg admitted this in a conversation with investors on Wednesday, noting that investments in the metaverse are different from previous product launches, as virtual reality often involves hardware and has a higher barrier to entry.
“First and foremost, this is laying the groundwork for what I expect to be a very exciting 2030,” he said. He added that the company is looking to expand its user base in the metaverse, offering a version of its Horizon Worlds virtual reality experience on computers this year.
Earlier this month, Meta announced plans to monetize the metaverse – including a fund for creators to allow users to monetize their creations for virtual reality. However, acceptance is weak and Meta needs to continue investing to help attract developers and brands to its platform, said Raj Shah, an analyst at Publicis Sapient.
“The situation for Meta is that it still has a significant amount of money, which will allow it to invest in its vision – if it manages to continue the course and remain committed to that vision,” he said.
Net income from Meta’s app business fell 13 percent from $ 11.48 billion last year. Meta said in second-quarter guidelines that it projected revenue of $ 28 billion to $ 30 billion, slightly lower than analysts’ previous estimates of $ 30.6 billion, reflecting headwinds affecting the technology sector as a whole, including inflation and the war with Ukraine. .
Like other social media companies, including Alphabet, Meta is reporting increased competition for consumers and advertising dollars from TikTok. Time on Reels – Meta’s response to the short form video platform – now accounts for 20% of the time spent on Instagram, and video accounts for 50% of the time spent on Facebook, Zuckerberg said on Wednesday.
As the use of these features grows, he said it is a long-term investment that is currently dragging profits. The company is also working to improve its video algorithm systems to improve content offerings.
“We are focused on growing reels as a key part of the vision of the detection engine,” Zuckerberg said. “We expect this expansion and commitment to shift from a short-term headwind to a headwind at some point.
Reuters contributed to this report
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