Meta doubled profits in September quarter as turnaround effort continues

Meta again exceeded Wall Street’s expectations on Wednesday when it reported earnings for the quarter ended in September, in another sign that the company’s “year of efficiency” turnaround strategy continues to deliver. The strong results come as Meta says it has “substantially completed” the layoffs portion of its cost cutting plan following a brutal 2022.

The Facebook parent company posted year-over-year quarterly revenue gains of 23% to more than $34 billion, exceeding the $33.5 billion analysts had projected. Meta also more than doubled profits compared to the year-ago quarter, reporting net income of nearly $11.6 billion — during the same quarter in the prior year, Meta’s profits had dropped by half.

Meta (META) shares jumped as much as 4% in after-hours trading Wednesday following the report. Meta stock was already up 140% year-to-date as of Wednesday’s close.

“All in all, it was a blowout quarter with Meta reporting its most profitable quarter in years,” Investing.com senior analyst Jesse Cohen said in a statement following the report.

Zuckerberg laid out his plans for a “year of efficiency” in February following the company’s third quarterly revenue decline, after a bruising year in which the company faced challenges from Apple’s app privacy changes and lower digital ad spending amid broader macroeconomic uncertainty. The company’s user growth had also been slowing amid steep competition from rivals like TikTok.

Meta on Wednesday posted relatively strong user growth for both its family of apps and its core Facebook platform. Facebook’s monthly active users grew 3% year-over-year to more than 3 billion, up from a 2% growth rate during the year-ago quarter.

There were also some positive signals for the company’s core advertising business. Ad impressions across all of Meta’s apps grew 31% year-over-year in the September quarter. The company also reported a 6% year-over-year decrease in average price per ad. Still, it’s a slower rate of decline than in the same period in the prior year, when average price per ad fell 18%.

Meta has been working to improve its ad targeting technology using artificial intelligence to improve return on investment for advertisers, and to better monetize its popular Reels feature on Instagram. “Reels has graduated from being an early initiative to being a core part of our apps,” CEO Mark Zuckerberg said on an analyst call Wednesday.

And as advertisers return to higher spending as the macroeconomic outlook stabilizes somewhat, Meta appears to be a key beneficiary.

“Meta’s solid quarter adds further evidence to the view that advertisers are choosing to spend their budget on the so-called market leaders, such as Facebook and Instagram, at the expense of the smaller social media networks,” Cohen said.

Fellow social media platform Snap said during its Tuesday earnings report that some advertisers temporarily paused their spending following the outbreak of the Israel-Hamas war earlier this month — raising questions about potential implications of the conflict for the broader digital advertising industry. Meta CFO Susan Li said during Wednesday’s analyst call that Meta has also “noticed softer ad spend” in the early part of the fourth quarter, corresponding with the timing of the Israel-Hamas war’s outbreak. But, Li noted, “it’s hard to attribute demand softness to any specific geopolitical event.”

Meta faces other potential challenges, too. Wednesday’s report comes one day after the company was sued by dozens of states accusing the social media giant of harming young users’ mental health through allegedly addictive features such as infinite news feeds and frequent notifications that demand users’ constant attention. Meta pushed back on the claims, saying it has already introduced over 30 tools to support teens and their families.

The company has also been funneling tens of billions of dollars into its Reality Labs unit, which houses its metaverse efforts and which lost more than $3.7 billion during the September quarter, up from a $3.67 billion loss in the year-ago quarter. While Meta on Wednesday revised down its 2023 total expense guidance for the second time this year to between $87 billion and $89 billion, the company said it still expects Reality Lab full-year operating losses to increase year-over-year in both 2023 and 2024.

Meta projects year-over-year revenue growth for the final quarter of 2023 to be between 13.5% and 24%.

Zuckerberg on Wednesday stressed that Meta’s focus on efficiency won’t change anytime soon. The company posted its highest operating margin in two years during the September quarter, and “I look forward to carrying … this operating discipline forward,” he said. He added that AI is set to be the company’s biggest investment area in 2024.

Zuckerberg also said that Threads — Meta’s competitor to the platform formerly known as Twitter — now has just under 100 million monthly active users. The announcement indicates that the platform is now steadily growing active users after an early boom in sign-ups and then sharp decline in engagement following its launch in July. Zuckerberg said he believes the platform has a “good chance” of reaching 1 billion users if it continues growth over the next several years.