Share your thoughts on our News & Insights section. Complete our survey to help us improve.

Share research

Meta - shares rise on better-than-expected first quarter

Revenue rose 3% to $28.6bn in the first quarter, beating analyst expectations, reflecting advertising revenue of $28.1bn.

No recommendation - No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Prices delayed by at least 15 minutes

This article is more than 1 year old

It was correct at the time of publishing. Our views and any references to tax, investment, and pension rules may have changed since then.

Revenue rose 3% to $28.6bn in the first quarter, beating analyst expectations, reflecting advertising revenue of $28.1bn, which was up 4%.

The number of Daily Active People using at least one of Meta's platforms rose 5% to 3.02bn.

A 10% jump in costs, including over $1bn in restructuring charges, meant operating profit was 15% lower at $7.2bn.

Lower profits contributed to a $1.6bn decline in free cash flow to $6.9bn, while net cash on the balance sheet was $27.5bn.

Meta's AI work is said to be driving "good results", Q2 revenue is expected to be $29.5-32bn. Restructuring costs means full year expenses are due to be $86-90bn

Meta expects the Irish Data Protection Commission (IDPC) to issue a decision in May in its inquiry relating to transatlantic data transfers of Facebook user data

The shares rose 11% in pre-market trading.

View the latest Meta share price and how to deal

Our view

The market has been very pleased with the direction of travel at Meta. It's a real relief to see advertising revenue moving in the right direction again. More specifically, Meta's given investors what they wanted. A serious re-think of the cost base and a promise to refocus energy on its core family of apps (including, Facebook, Instagram and WhatsApp). Together with a drop in revenue that was less severe than expected, Meta's seen an enormous rebound in its valuation - driven more by relief rather than celebration.

Meta's restructuring efforts include laying off tens of thousands of employees. Job cuts are always regrettable, but from a strategic point of view the move makes sense as Mark Zuckerberg works to reduce the company's serious case of bloat. Making sure a business strategy is sustainable and focussed is always important, but that's especially true for Meta. The group relies on advertising revenue, and this is a tough place to be as consumer spending and confidence is suffering.

Meta's platforms don't hold as much sway with marketing teams as they need to. Last year wasn't the first time the social media giant has lagged peers, and that reflects the fact that competition is fierce, with younger entrants like TikTok a serious opponent. In such uncertain and difficult times, other big names are struggling because marketing teams spend less when things are tough.

Another big 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.

The difficulties ahead aren't lost on management, and that's where the grand metaverse plans come in. Unfortunately, the roll out and take up of the group's virtual reality products never really got going, despite the seemingly never-ending upwards spiral of the research and development budget. This is problematic because Meta doesn't have other income streams to fall back on, so as it stands, when advertisers turn off the tap, Meta's revenue funnel runs dry very quickly.

It's also pushing hard to drum up excitement for its AI capabilities, which now appears to be the focus for future investment. While things like AI-driven recommendations have the potential to keep eyeballs on apps like Instagram for longer, the exact plan and margin connotations of AI are still a bit murky.

We're encouraged that spending on this untested product is set to be redirected to getting Meta's main house in order. But the Metaverse is still churning away in the background - it's not been given up. That could have implications for investor sentiment in the future.

Meta's balance sheet is awash with cash. It has resources to stomach ups and downs.

Overall, Meta's valuation has seen a sharp revision upwards, 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 investors need to keep in mind 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.

Latest from Share research
Weekly newsletter
Sign up for editors choice. The week's top investment stories, free in your inbox every Saturday.
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.

Our content review process
The aim of Hargreaves Lansdown's financial content review process is to ensure accuracy, clarity, and comprehensiveness of all published materials
Article history
Published: 27th April 2023