Meta's Strong Revenue Growth Faces Potential Impact from Advertiser Demand Volatility

Article Brief:

In Q3 2023, Meta Platforms reported a 23% growth in revenue, reaching $34.1 billion, as stated in their earnings statement. Furthermore, both the daily and monthly usage of their suite of apps witnessed a 7% increase compared to the previous year.

The largest growth in ad revenue came from the online commerce, CPG, and gaming verticals. The total number of ad impressions served across Meta's services increased by 31%, but the average price per ad decreased by 6% due to strong impression growth.

Regarding Reels, it now has a neutral impact on overall ad revenue. However, the company is working on enhancing monetization as the feature has led to a more than 40% increase in time spent on Instagram since its launch. Meta is also expanding its AI capabilities for advertisers, particularly with Advantage+ shopping campaigns, which are expected to reach a $10 billion run rate.

Article Insight:

By optimizing efficiency and capitalizing on a recovering ad market, Meta has achieved its highest revenue growth rate since 2021. The company's executives attribute this success to its capacity to provide captivating experiences, supported by the sustained engagement on Facebook and Instagram. Furthermore, the increased popularity of Reels and other video content has contributed to additional levels of engagement.

To generate revenue from this engagement, the company is striving to enhance the monetization of Reels, develop new advertising experiences within the platform, facilitate advertisers' access to marketing data, and utilize AI in ads and products.

According to CEO Mark Zuckerberg, Reels has officially become a key app offering and is now generating ad revenue that is neutral to the overall company's revenue. This achievement occurred earlier than anticipated. However, Meta does not intend to disclose the specific contribution of Reels to its net revenue in the future. Instead, the company aims to enhance ad performance and interactivity, while simultaneously achieving a balanced approach to engagement and growth across its entire video portfolio, including Reels.

AI was a prominent topic during the earnings call as Meta plans to invest and expand various tools in advertising, feeds, messaging, hardware, and other related areas, as the significance of AI continues to grow in 2024. The company has observed positive results with its Advantage+ Shopping solution, particularly in online commerce and CPG advertising. Additionally, over half of its advertisers are utilizing Advantage+ creative tools to enhance their ad visuals and text.

While Reels and AI are driving the company's growth, there are other areas that haven't gained momentum. Zuckerberg mentioned that Threads, Meta's competitor to X (previously known as Twitter), is currently focused on building its community to become a "billion person public conversations app that fosters positivity." Furthermore, despite launching the Quest 3 headset, Ray-Ban Meta smart glasses, and expanding testing of its Horizons software, the metaverse experiments, which define the company formerly known as Facebook, are still incurring losses. Reality Labs reported an operating loss of $3.7 billion.

Meta projects total revenue for Q4 2023 to be between $36.5 billion and $40 billion. The company has witnessed robust advertiser demand in important segments, but also heightened volatility. Although Meta does not have significant direct revenue exposure to Israel and the Middle East, it has noticed a decrease in ad spend at the beginning of Q4, which corresponds to the commencement of the conflict. Furthermore, Meta is closely monitoring the regulatory environment, which could potentially have a substantial impact on its business. Specifically, executives have highlighted the Federal Trade Commission's endeavor to amend its consent order and impose extra limitations on the company.

"We are contesting this matter, but if we are unsuccessful it would have an adverse impact on our business," said CFO Susan Li.