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Meta - better than expected performance but uncertainty weighs

Meta's third quarter revenue rose 23% to $34.1bn, reflecting an increase in advertising revenue.

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Meta's third quarter revenue rose 23% to $34.1bn, reflecting an increase in advertising revenue. Within that, prices per-ad were down 6%. The higher overall revenue, coupled with a 7% reduction in costs and expenses, meant operating profit more than doubled to reach $13.8bn. Performance was better than expected.

The number of people using one of Meta's apps or platforms daily rose 7% to 3.14bn.

Meta generated free cash flow of $13.6bn in the period and there was a 24% reduction in the group's staff headcount.

CFO Susan Li has highlighted the group's seeing softer advertising spend in the new financial quarter, as uncertainty increases surrounding the Israel-Hamas conflict. The group also highlighted increasing regulatory pressure which could affect the business.

Meta shares fell 3.5% following the announcement.

View the latest Meta share price and how to deal

Our view

Meta's third quarter was solid. Rebounding ad spending, carefully controlled costs and the ensuing margin expansion means the fundamentals are in a much nicer place - and should stay that way for at least a few more quarters.

While classic digital advertising remains the core of this tech giant, the future is a lot more exciting. A host of AI products and services are in the pipeline, which represent enormous potential. Things like AI-driven recommendations have the potential to keep attention on apps like Instagram for longer, although the exact plan and margin connotations of AI are still a bit murky.

We're encouraged that spending on untested product has partly been redirected to getting Meta's main house in order. But the other grand plan - the Metaverse - is still churning away in the background - it's not been given up. And we continue to think there could be exciting times ahead, it's just difficult to predict when the good times might roll - and there are likely to be ups and downs along the way.

Looking to the here and now, the market hasn't been convinced by the most recent set of results. That's partly because of concerns around geopolitical unrest in the Middle East and what this could mean for advertising demand. There are also some questions surrounding Chinese e-commerce demand given concerns there. Management remain confident but that's something to monitor.

Regulatory risk also can't be ignored. Data privacy, misinformation, user care to name just a few are some of the ongoing risks being monitored. The potential for fines or even fundamental changes to the operating model can't be ruled out.

Meta generates bucket loads of free cash flow and the balance sheet's in good order, so it has the firepower to invest for growth and stomach ups and downs. The market will instead remain focussed on how well the group's managing the balancing act between margin growth and nurturing moonshots.

Meta's valuation has seen a sharp revision upwards this year overall, and we share a lot of the enthusiasm. Billions of people use one of Meta's apps every day and its newfound focus is the right move. But the stock is likely to remain volatile, thanks to a combination of tough macro-economic conditions, and lingering confusion around plans for long-term growth.

Meta 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.

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.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Sophie Lund-Yates
Sophie Lund-Yates
Lead Equity Analyst

Sophie is a lead on our Equity Research team, providing research and regular articles on a selection of individual companies and wider sectors. Sophie's specialities are Retail, Fast Moving Consumer Goods (FMCG), Aerospace & Defence as well as a few of the big tech names including Facebook and Apple.

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Article history
Published: 26th October 2023