Meta is seeing a rebound from its disappointing market performance that saw over $700 billion wiped off its valuation last year, triggering criticism of the CEO, Mark Zuckerberg’s leadership.
On Thursday, the shares of the social media conglomerate jumped over 23%, marking its best outing in the market in a long time. Meta shares recorded its highest point since September 2022, beating topline estimates with $32.17 billion in revenue.
The surprising gain has shushed analysts across Wall Street, who after the company’s disastrous third-quarter report last year, became so critical of Zuckerberg’s leadership. The CEO’s decision to delve into metaverse, sinking billions of dollars in it, was at the center of the criticism.
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Zuckerberg in an earnings call on Wednesday attributed the revenue growth to strong community and engagement increase across Facebook, Instagram, WhatsApp, and Messenger.
“We reach more than 3.7 billion people monthly across our family of apps. On Facebook, we now reach 2 billion daily activities and almost 3 billion monthly. The number of people daily using Facebook, Instagram and WhatsApp is the highest it’s ever been,” he said.
Meta, Facebook’s parent company, announced a series of operational changes geared toward boosting its declining user numbers. Facebook lost around 500,000 daily users in the last three months of 2021, its first loss of daily active users. That was followed by more losses, resulting in ad revenue decline.
Zuckerberg said the changes, which included a shift to short-form videos, were responsible for the company’s latest performance. He said that Meta’s priorities haven’t changed since last year, pointing to AI today and over the longer term the metaverse, as the two major technological waves driving “our roadmap.”
Analysts said Meta’s decision to cut down operational cost was key to its stunning revenue growth. Meta laid off 11,000 workers in early November as part of its efforts to reduce running cost.
“Before getting into our product priorities, I want to discuss my management theme for 2023, which is the “year of efficiency”. We closed last year with some difficult layoffs and restructuring some teams. When we did this, I said clearly that this was the beginning of our focus on efficiency and not the end,” Zuckerberg said on Wednesday.
He talked further about his plan to cement the progress by focusing on areas such as flattening [Meta’s] org structure and removing some layers of middle management to make decisions faster, as well as deploying AI tools to help [the company’s] engineers be more productive.
Read his full statement:
More details on the state of our business from today’s earnings call:
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2022 was a challenging year, but I think we ended it having made good progress on our main priorities and setting ourselves up to deliver better results this year as long as we keep pushing on efficiency. I said last quarter that I thought our product trends look better than most of the commentary out there suggests. That’s even more the case now. We reach more than 3.7 billion people monthly across our family of apps. On Facebook, we now reach 2 billion daily actives and almost 3 billion monthly. The number of people daily using Facebook, Instagram and WhatsApp is the highest it’s ever been.
Before getting into our product priorities, I want to discuss my management theme for 2023, which is the “year of efficiency”. We closed last year with some difficult layoffs and restructuring some teams. When we did this, I said clearly that this was the beginning of our focus on efficiency and not the end. Since then, we’ve taken some additional steps like working with our infrastructure team on how to deliver our roadmap while spending less on capex. Next, we’re working on flattening our org structure and removing some layers of middle management to make decisions faster, as well as deploying AI tools to help our engineers be more productive. As part of this, we’re going to be more proactive about cutting projects that aren’t performing or may no longer be as crucial, but my main focus is on increasing the efficiency of how we execute our top priorities.
I think there’s more we can do to improve our productivity, speed, and cost structure, and by working on this over a sustained period I think we’ll both build a stronger technology company and become more profitable. I’m very focused on doing this in a way that helps us build better products, and because of that, even if our business outperforms our goals, this will stay our management theme for the year since I think it’s going to make us a better company. At the same time, I’m also focused on delivering better financial results than what we’ve reported recently and on meeting the expectation I outlined last year of delivering compounding earnings growth even while investing aggressively in future technology.
Next, I want to give some updates on our priority areas. Our priorities haven’t changed since last year. The two major technological waves driving our roadmap are AI today and over the longer term the metaverse.
So first, let’s talk about our AI discovery engine. Facebook and Instagram are shifting from being organized solely around people and accounts you follow to increasingly showing more relevant content recommended by our AI systems. This covers every content format — which makes our services unique — but we’re especially focused on short-form video since Reels is growing so quickly. And I’m really proud of our progress here, Reels plays across Facebook and Instagram have more than doubled over the last year, while the social component of people resharing Reels has grown even faster and has more than doubled on both apps in just the last 6 months.
The next bottleneck that we’re focused on to continue growing Reels is improving monetization efficiency, or the revenue that’s generated per minute of Reels watched. Currently, the monetization efficiency of Reels is much less than feed, so the more that Reels grows, even though it adds engagement to the system overall, it also takes some time away from feed and we actually lose money. But people want to see more Reels though, so the key to unlocking that is improving our monetization efficiency so that way we can show more Reels without losing increasing amounts of money. We’re making progress here, and our monetization efficiency on Facebook has doubled in the past six months. In terms of the revenue headwind, we’re still on track to be roughly neutral by the end of this year or maybe early next year, and then after that we should be able to profitably grow Reels while keeping up with the demand that we see.
In our broader ads business, we’re continuing to invest in AI and we’re seeing our efforts pay off here. In the last quarter, advertisers saw over 20% more conversions than in the year before. And combined with a declining cost per acquisition, this has resulted in higher returns on ad spend.
We continue to be excited about the monetization opportunity with business messaging too. Facebook and Instagram are the first two pillars of our business, and in the next few years we hope to bring messaging online as the next pillar. One way of doing this is click-to-message ads, which is now at a $10 billion run rate.
And paid messaging is the other piece of this. We’re earlier here, but we continue to onboard more businesses to the WhatsApp Business Platform, where they can answer customer questions, send updates, and sell directly in chat. So for example, AirFrance started using WhatsApp to share boarding passes and other flight information in 22 countries and in 4 languages. Businesses often tell us more people open their messages and they get better results on WhatsApp than other channels.
AI is the foundation of our discovery engine and ads business – and we also think it’s going to enable many new products and additional transformations in our apps. Generative AI is an extremely exciting new area with so many different applications, and one of my goals for Meta is to build on our research to become a leader in generative AI in addition to our leading work in recommendation AI.
The last area that I want to talk about is the metaverse. We shipped Quest Pro at the end of last year, and I’m really proud of it. It’s the first mainstream mixed reality device, and we’re setting the standard for the industry with our Meta Reality system. As always, the reason we’re focused on building these platforms is to deliver better social experiences than what’s possible today on phones. The value of MR is that you can experience the immersion and presence of VR while still being grounded in the physical world around you. We’re already seeing developers build out some impressive new experiences like Nanome for 3D modeling molecules and drug development, Arkio for architects and designers to create interiors, and of course a lot of great games. The MR ecosystem is relatively new, but I think it’s going to grow a lot in the next few years. Later this year, we’re going to launch our next generation consumer headset, which will feature Meta Reality as well, and I expect that this is going to establish this technology as the baseline for all headsets going forward, and eventually of course for AR glasses as well.
Beyond MR, the broader VR ecosystem continues growing. There are now over 200 apps on our VR devices that have made more than $1 million in revenue.
We’re also continuing to make progress with avatars. We just launched avatars on WhatsApp last quarter and more than 100 million people have already created avatars in the app. Of those, about one in five are using their avatar as their WhatsApp profile photo. I thought that was an interesting example of how the Family of Apps and metaverse visions come together. Because even though most of our Reality Labs investment is going towards future computing platforms — glasses, headsets, and the software to run them — as the technology develops, most people are going to experience the metaverse for the first time on phones and start building up their digital identities across our apps.
Alright, so those are the areas we’re focused on: AI, including our discovery engine, ads, business messaging, and increasingly generative AI, and the future platforms for the metaverse. And from an operating perspective, we’re focused on efficiency and continuing to streamline the company so we can execute these priorities as well as possible and build a better company while improving our business performance.
As always, I’m grateful to our teams for your work on all of these important areas, and to all of you for being on this journey with us.