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Earnings preview: Meta’s revenue is expected to rise

Meta Platforms

Meta Platforms will report its second-quarter earnings after the US markets close on 27 July (APAC time). Meta’s shares are one of the top performers on Wall Street this year, up about 160% year-to-date. Meta cancelled some of its data center construction projects to save costs for a new design that is cheaper and faster, coupled with a 25% staff layoff, which may point to higher revenue growth, echoing CEO Mark Zuckerberg’s vows of a “year of efficiency” in 2023.

Most recently, the newly released Twitter-like app, Threads gained 100 million users in the first week of launch. Time will tell is Meta can retain these users as it evolves and develops Threads over the coming months. 

Q1 Review

Meta returned to positive revenue growth in the last quarter after three consecutive quarters of declines. In the first quarter of this year, the social media giant’s revenue grew by 3% to $28.65 billion, beating the market’s expectations. Its earnings per share were at $2.20, down 24% from a year ago. The company expects revenue of between $29.5 billion and $32 billion in the second quarter. Meta’s daily active users (DAUs) were at 2.04 billion, and the average revenue per user (ARPU) was $9.62, with both beating analysts’ estimates.  

Business growing focus

While Meta’s ads income remains the core, its virtual reality and artificial intelligence are the key growing areas that lead the business’ future.

Firstly, Meta’s net income from click-to-messaging ads is expected to rise as user growth of Instagram may gain momentum. The recently released Threads app could also offset the negative impact of layoffs, though this will not reflect in its upcoming earnings report.

Secondly, Meta’s Reality Lab is expected to continue to drag on its revenue growth as the company said operating losses in this division would increase in 2023 after a $13.7 billion loss in 2022. The Reality Lab lost $3.99 billion in the first three months.

Thirdly, Meta will increase spending on artificial intelligence and its ad-supported products like newsfeeds and Reels. But the focus of the new design of its data center will be cheaper and faster and flex capacity to grow AI-focused projects significantly, as stated by the CFO at Meta. Meta announced Liama 2, a new open-source family of AI language models that can be integrated into commercial products. The AI tool will be available on Microsoft Azure and will be on Amazon’s AWS and other providers.

Forecasts by Bloomberg

Earnings per share: $2.915, + 18.5% annually

Revenue: 31.054 billion, + 7.7% annually

Net income, Adj: 7.459 billion, - 4.77% annually

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