Meta Earnings Deliver: Stock Jumps As Profits Soar 73%

 

Meta's billionaire CEO Mark Zuckerberg.

Meta’s second-quarter profits rose by some 73%, the social media conglomerate reported Wednesday, encouraging investors as mounting losses from its more ambitious non-social media bets are outweighed by massive results from its cash cow advertising business.

Key Facts

Meta’s $39.1 billion of Q2 revenue beat average analyst forecasts of $38.3 billion in sales, while its $5.16 billion earnings per share ($13.5 billion net income) smashed estimates of a $4.72 profit per share ($12.3 billion), according to FactSet.

The company said it expects third-quarter revenue of between $38.5 billion and $41 billion, with the $39.8 billion midpoint well above the $39.1 billion consensus forecast.

Meta also said it expects full-year expenses of between $96 billion and $99 billion, in line with its prior outlook, while bumping its range from capital expenditures from $35 billion to $40 billion to $37 billion to $40 billion, as concerns about spending in the artificial intelligence arms race sit at the forefront of tech investors’ minds.

Shares of Meta popped more than 5% after the earnings drop, fresh off of a 3% gain but down more than 10% over the last three weeks amid the broader tech tumble.

Big Number

$4.5 billion. That’s how much of a quarterly loss Meta reported in its Reality Labs division, which encompasses its metaverse, or augmented and virtual reality, endeavors. That is the steepest operating loss the segment recorded dating back to its 2021 inception, matching forecasts of $4.5 billion.

Key Background

Despite its rebrand from Facebook to Meta in October 2021 to reflect its metaverse ambitions, Meta remains a social media company at its core, with its apps like Facebook, Instagram and WhatsApp accounting for 99% of total sales. And within apps, Meta makes about 99% of its money off of advertisements. Meta runs a similar digital ad-based tech operation to Google parent Alphabet, which generates about three-fourths of its revenue from ads, though it generates about twice as much ad revenue than Meta.

Tangent

Shortly after its name change, Meta stock faced a haunting selloff, collapsing almost 80% from its September 2021 peak to its November 2022 nadir. The losses coincided with five consecutive quarters of year-over-year profit declines, owing to the rockier macroeconomic environment causing advertisers to rein in spending and mounting expenses tied to the metaverse. But as Meta CEO Mark Zuckerberg declared 2023 the “year of efficiency,” cutting overhead costs thanks in part to laying off 20,000 employees, profits returned in a major way, with adjusted earnings growing annually by 40% or more in each of the last five quarters. The stock returned to glory as its bottom line improved, actually trading more than 20% higher than its 2021 peak Wednesday, with shares up almost 300% since the beginning of last year even after falling more than 10% in July. The company also announced its first-ever quarterly dividends beginning in March, paying out $0.50 per share per quarter, a sign of the Silicon Valley company’s maturation and stable cash flow

As Profits Bounced Back Big Time