First quarter revenue rose 7% to $27.9bn, below market expectations but within guidance. An average of 2.87bn people used the group's platforms including Facebook, Instagram and WhatsApp in March. Monthly active users were 3.64bn, both of which reflected a 6% increase.
Operating income fell 25% to $8.5bn as costs rose 31%, led by a near 50% increase in research and development costs, and a 28% increase in headcount to 77,805.
The group expects second quarter revenue to be $28-$30bn. This reflects the continued negative impact of the war in Ukraine as well as a 3% decline due to exchange rate headwinds.
Shares rose 15.3% following the announcement.
View the latest Meta share price and how to deal
Our view
Meta's first quarter results were well received, but that's largely a dose of market relief. In reality, performance is ultimately tepid.
Revenue's growing at its slowest pace in a decade. Part of that is a question of scale. With close to 3bn people logging into Facebook, WhatsApp, Instagram and/or Messenger every day, exponential growth is much harder to come by.
Marketing teams paying handsomely to make the most of the data footprints all those users leave behind. And ad revenue is Meta's bread and butter.
But the recent slowdowns in ad revenue expectations have been sharper than we'd have liked. And it's partly why the company trades on a lower than average valuation. The biggest question mark from here is how the group will propel meaningful growth. Mounting competition, iOS privacy changes and difficulty monetising video content are all headwinds keeping those revenue expectations muted.
In response, the group's been building out its video offerings. These services don't serve as many ads, making them less profitable, but if engagement continues to climb there's room for Meta to expand its current monetisation strategy. Plus, we have yet to see Meta unleash the full potential of WhatsApp and Messenger in terms of ad revenue.
Meta's well-documented plan to build a so-called metaverse, a virtual space where users interact in the form of avatars, is another potential long-term growth driver. For now this division is still heavily in the red. And frankly we'd like some specific steer on exactly how the metaverse is going to work. It's a good idea in principle, and if successful, could see marketers prepared to part with even more money for the data Facebook's users leave behind. "If" is doing a lot of the work here though.
Ultimately, Meta's at an important turning point as it braves tougher conditions. Improving monetisation in some parts of the business and squeezing more dollars out of reluctant advertisers is a tall order, but with the metaverse unproven, it's vital. The group's got deep pockets and an enviable trove of customer data -Meta isn't going anywhere. 2022 could be a disappointment for the group, but we think the current uncertainty could offer those with a longer investment horizon an opportunity. Still, the subdued valuation reflects heady execution risk ahead.
Facebook key facts
All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
First Quarter Results
Growth slowed in Europe, but this was offset revenue growth over 20% in Asia Pacific and Rest of World. The largest market, US & Canada, grew 2.1%.
In Family of Apps (FoA), under which Instagram, Messenger, WhatsApp and its old namesake sit, revenue was up 6.1% to $27.2bn. Higher operating costs meant operating income declined 13% to $11.5bn.
Reality Labs (RL), which harbours augmented and virtual reality hardware and software, saw revenue rise from $534m to $695m. Operating losses widened by over $1bn to $3.0bn.
Ad impressions rose 15%, but price per ad declined by 8%. Average revenue per user fell from $9.39 last quarter to $7.72.
The group spent $5.55bn including leases in the first quarter. Capital expenditure expectations for the full year remain between $29bn and $34bn.
Facebook had a net cash position of $43.9bn at the end of the quarter. Free cash flow rose from $7.8bn to $8.5bn, reflecting favourable working capital movements.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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