Meta’s Cost Optimization Initiatives Pays Off

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Meta (Nasdaq: META), formerly Facebook,?recently announced its third quarter results that outpaced market expectations. Digital ad spend has picked up in the recent past, helping Meta’s performance. According to eMarketer,?Digital ad spend worldwide will increase nearly 10% to $601.84 billion this year from $549.51 billion in 2022.

Meta’s Financials

Meta’s Q3 revenues grew 23% to $34.15 billion, ahead of the market’s estimates of $33.6 billion. Meta’s cost control measures have paid off significantly; earnings grew from $4.4 billion last year to $11.6 billion in the reported quarter. Adjusted EPS grew 168% to $4.39 per share, significantly ahead of the Street’s forecast of $3.63.

Meta reduced its expenses by 7% as it revisited its organization structure, reduced headcount by nearly a third while continuing to assess facilities consolidation and data center restructuring. Meta’s Reality Labs division continues to generate losses and ended the quarter with $3.74 billion in operating losses. It has now lost almost $25 billion since early 2022.

Among key metrics, Daily active user (DAU) numbers for the core Facebook app grew 5% to 2.09 billion and monthly active users (MAU) grew 3% to 3.05 billion. The number of people active on any one of its family of products, which includes WhatsApp and Instagram, grew 7% to 3.96 billion people per month in the quarter. The number of daily active users on these applications grew 7% to 3.14 billion.

For the fourth quarter, Meta expects revenues to be in the range of $36.5-$40 billion, compared with the $38.85 billion average analyst estimate. Meta gave a wider outlook for revenues due to the Israel-Hamas war.

Meta’s Growth Plans

Earlier this week, Meta announced plans to offer people in the EU,?EEA,?and Switzerland the choice to access a premium ad-free version of Facebook and Instagram by signing up for a paid subscription. The free service will continue to operate with relevant ads in their feeds. The move will enable Meta to remain compliant to EU’s General Data Protection Regulation (GDPR).

For users who pay for the subscription, Meta will not use their information for ads. Subscription is being priced at €9.99/month on the web or €12.99/month on iOS and Android. The subscription will apply to all linked Facebook and Instagram accounts in a user’s Accounts Center. Starting March 1, 2024, an additional fee of €6/month on the web and €8/month on iOS and Android will apply for each additional account listed in a user’s account center.

Meta has already accounted for this additional potential revenue in the outlook it provided recently. While Meta has not spoken about similar plans for other regions, it will be interesting to see if they explore that option for the rest of the world.

Meanwhile, Meta continues to improve its AI offerings. It recently began rolling out AI stickers across the apps. These stickers will allow users to edit images or even co-create them with friends on Instagram using Restyle?and Backdrop, its new AI editing tools. It introduced Meta AI in beta, an advanced conversational assistant that’s available on WhatsApp, Messenger, and Instagram and will soon be launched for Ray-Ban Meta smart glasses and Quest 3. Meta AI gives users real-time information and?is able to?generate photorealistic images from their text prompts to share with friends. The service is currently available only in the US.

It is also launching 28 more AIs in beta, that will come with their own unique interests and personalities. Some of these AIs have been played by cultural icons and influencers such as Snoop Dogg, Tom Brady, Kendall Jenner, and Naomi Osaka. Meta is looking to expand these AIs for business use as well and will be releasing its AI studio for people and developers to build their own AIs.

Meta’s stock is trading at $310.87 with a market capitalization of $798.9 billion. It hit a 52-week high of $330.54 in July and a 52-week low of $88.09 in November last year.

Disclosure:?All investors should make their own assessments based on their own research, informed interpretations, and risk appetite. This article expresses my own opinions based on my own research of product-market fit, channel execution, and other factors. My primary interest is in product strategy. While this may have bearing on stock movements, my writings tend to focus on long-term implications. The information presented is illustrative and educational, but should not be regarded as a complete analysis nor recommendation to buy or sell the securities mentioned herein. I am not a registered investment adviser and I am not receiving compensation for this article. I am an investor in this company.

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