Meta’s austerity measures are panning out.
The company, which is roughly halfway through its so-called “year of efficiency” – which involved restructuring and multiple rounds of mass layoffs – saw its stock soar nearly 23% in after-hours trading on Wednesday after reporting its Q2 earnings.
Total revenue for the quarter was $32 billion, up 11% YOY. Most of that revenue came from advertising, up 12% to $31.5 billion.
More than 3 billion people use one of Meta’s apps daily, and its average revenue per user was $53.53, up from $50.25 at this time last year.
Oh, and Reels revenue is also on the rise, having reached a $10 billion annual run rate, up from $3 billion in October.
There was so much growth across nearly every area of the business (with the exception of Reality Labs, Meta’s R&D division for the metaverse, which lost $3.7 billion in Q2) that the quarter was actually rather boring.
And so, instead of ratting off more stats – you can get your fill from the earnings release – here are five takeaways from Meta’s Q2 call in case you missed it.
AI will ‘underpin’ everything
Meta has been pouring billions of dollars into building AI infrastructure.
Some of that is to support its future product road map and some is to improve engagement and monetization in the near term through better ranking and recommendation systems.
For example, AI-recommended content from accounts people don’t follow is the fastest-growing category of content within the Facebook feed. These recommendations have led to a 7% increase in time spent.
On top of that, more than three-quarters of its Reels advertisers now use Advantage+, its AI-driven automated ad product.
Meta also has a new AI-based model architecture called Lattice that predicts and helps improve ad performance across its ads systems. It also recently released a product called AI Sandbox so advertisers can experiment with generative AI features, like automatically generating different backgrounds for ad creative.
Further, Meta released Llama 2 last week, a free open-source large language AI model, which is its challenge to ChatGPT and Bard.
It’s been an AI bonanza, and that isn’t going to change.
“We wanted to get the Llama 2 model out now – that’s going to underpin a lot of the new things we’re building,” said CEO Mark Zuckerberg. “This is going to be stuff we’re working on for years.”
Impressions vs. ad pricing
But Meta is still in the process of trying to balance its advertising economics.
In Q2, the total number of ad impressions served across its services increased by 34% while the average price per ad decreased 16%. The YOY decline in pricing was driven by an uptick in impression growth among users outside the US and by more engagement with relatively newer and lower-monetizing surfaces.
Although Reels engagement is growing, you can only increase ad load in short-form video by so much before it messes with the experience, as opposed to within a scroll-based content feed.
“While overall pricing remains under pressure from these factors,” Meta CFO Susan Li told investors, “we believe ongoing improvements to ad targeting and measurement are continuing to drive improved results for advertisers.”
Sewing slowly
Speaking of monetizing new surfaces, what about bringing ads to Threads, Meta’s Twitter competitor?
Zuckerberg reiterated that this is not happening anytime soon.
For the foreseeable, Meta will focus on retention, improving the product experience and growing the user base further. There won’t be ads on Threads until the app hits at least hundreds of millions of users, he said.
“Only after that are we going to focus on monetization,” Zuckerberg said. “We’ve run this playbook many times before with Facebook, Instagram, WhatsApp Stories [and] Reels.”
A reprieve
It really is premature to talk about advertising on Threads, considering that the app only came out a few weeks and isn’t even available in Europe or the UK yet. (Data privacy concerns, etc.)
But keeping with the data privacy theme, Meta notched a win in early July when the European Commission adopted its adequacy decision and legalized the transfer of data between the EU and the US.
Meta is still facing a $1.3 billion fine for exporting European user data to the US, but the adequacy decision will help Meta with its appeal.
Though adequacy is “good news” for Meta, Li said, and for other US-based companies, the regulatory landscape remains volatile.
“We saw a positive development [with respect to EU-US data transfers],” Li said. But “broadly speaking, we continue to see increasing legal and regulatory headwinds in the EU and the US that could significantly impact our business and our financial results.”
No love lost
There’s something else that could “significantly impact” Meta’s business, and that’s the tens of billions of dollars it’s been sinking into Reality Labs. It’s lost more than $21 billion since the start of last year, with more operating losses to come tied to ongoing product development.
But Zuckerberg is sticking with his metaverse vision.
In his view, Reality Labs investments will eventually “unlock a lot of value” for Meta’s family of apps through increased engagement and better monetization rather than just through device sales.
Some of those efforts are being impeded by companies like Apple, Zuckerberg said, in what was perhaps a reference to the latter’s 30% App Store fees. (Meta and Apple have tussled over that in the past, as well as over Apple’s ATT privacy framework.)
There are “features we would love to build, but we’re not allowed to because Apple or others just don’t allow us to build these things,” Zuckerberg said, “and that is really unfortunate for the industry.”
“Look at what happened with AppTrackingTransparency,” he continued. “There was massive value destruction for small- and medium-sized businesses because of the rules set by another platform.”
