Facebook parent Meta sees advertising jump, tops Wall Street targets

New York - Meta Platforms on Wednesday reported a strong rise in advertising revenue, topping Wall Street financial targets for the second quarter and forecasting third-quarter revenue above market expectations.

The results from Meta, Facebook’s parent company, came a day after a

strong performance from Alphabet’s Google

and make the case that consumers, and the advertisers eager to reach them, are spending despite broad economic concerns.

Still, the company also forecast that expenses would rise in both 2023 and 2024, citing costs including legal fees and increased spending on infrastructure considered key to the tech sector’s feverish artificial intelligence (AI) race. That spending comes after aggressive cost-cutting in other parts of the company, including safety teams and basic business functions.

Meta shares were up 7.5 per cent in after-hours trade on Wednesday.

“We continue to see strong engagement across our apps, and we have the most exciting road map I’ve seen in a while with Llama 2, Threads, Reels, new AI products in the pipeline, and the launch of Quest 3 this fall,” chief executive Mark Zuckerberg said.

Meta’s second-quarter revenue grew 11 per cent to US$32 billion (S$42.4 billion) in the quarter ended June 30, compared with analysts’ average estimate of US$31.12 billion.

Ad revenue rose 12 per cent in the quarter, faster than growth at Google, where ad revenue rose 3 per cent. Adjusted earnings per share of US$2.98 topped Wall Street targets of US$2.91, according to data from Refinitiv.

The social media giant has been climbing back from a bruising 2022, buoyed by hype around emerging AI technology and an austerity drive in which it has shed around 21,000 employees since last autumn. The company’s shares have more than doubled in value in 2023 as a result.

Advertisers are reinforcing those gains by pumping money into digital ads again after months of muted spending, heartened by signs that the economy may overcome a bout of high inflation without suffering a major meltdown. Brands are hedging their bets, however, and sticking with tried-and-true platforms. That helps Meta and Alphabet while punishing smaller players such as Snap, which reported disappointing sales on Tuesday.

Meta’s revenue forecast did not specify whether the figure includes any sales that might come from the new Threads app, which does not yet have ads.

Losses and expenses

The revenue gains provide relief as Meta makes massive investments to upgrade its data centres and stay competitive in an emerging arms race around AI technology, while continuing to invest more than US$10 billion a year in a longer-term bet on “metaverse” hardware and software.

Meta cut its capital expenditure forecast for 2023, driven in part by pushing some costs related to AI into 2024, when capital expenditure is expected to grow.

Mr Zuckerberg told investors that executives were “debating heavily” how much AI capacity to bring online to prepare for a potential explosion in need. He saw three product categories for AI – features for advertisers, AI agents on chat and internal company productivity tools.

He said he envisioned some revenue coming from Meta’s recently released Llama 2 model, which is largely open source but requires a licence for use by companies with more than 700 million users.

“We want this to be open. But if you are someone like Microsoft or Amazon or Google and you are going to basically be reselling these services, that is something that we think we should get some portion of the revenue for,” Mr Zuckerberg said.

Meta’s Reality Labs unit, which is responsible for developing metaverse-oriented technology such as augmented reality glasses, reported sales of US$276 million, down from US$452 million in the same quarter of 2022. The unit lost US$3.7 billion in the second quarter, putting it on track to have far higher costs than the US$5 billion annual target set out in a widely circulated investor note in the autumn. The unit has lost more than US$40 billion since 2021, including US$13.7 billion in 2022.

Meta said it expected Reality Labs operating losses to “increase meaningfully” in 2024 as the company continued to invest in augmented and virtual reality and “scale our ecosystem”. Mr Zuckerberg had previously said Meta would “pace” investments in the division after 2023.

He told investors he understood why many of them would feel discomfort over such a long-term bet. REUTERS