April 26 (Reuters) – Meta Platforms Inc (METAO) CEO Mark Zuckerberg said on Wednesday that artificial intelligence is helping the company drive more traffic to Facebook and Instagram and win more ad sales, as it expects quarterly revenue to be much higher than analysts expected.
Meta shares rose 12% in after-hours trading, adding more than $50 billion to its market cap and continuing the rally in technology stocks that began after Alphabet Inc (GOOGL.O) and Google’s Microsoft Corp (MSFT.O) reported results. Strong on Tuesday. .
Meta trimmed the range of its cost forecasts for the year, saying expenses could be lower than the company forecast in March, and it beat forecasts for first-quarter earnings and revenue, which rose for the first time in nearly a year.
The company, which has been slow to adopt AI-friendly hardware and software systems for its core business, has undertaken several costly reforms to boost its core business, including a massive project to upgrade its AI capability.
“At this point, we are no longer behind in building the infrastructure for artificial intelligence,” Zuckerberg said on the conference call. “Conversely, we now have the ability to pioneer work in this space on a large scale.”
Meta said AI recommendations increased time spent on Instagram by 24% in the January-March quarter.
“I think a lot of Meta’s investment in AI has gone on the side of advertisers, similar to Alphabet,” said James Cordwell, an analyst with Atlantic Equities.
“As a consumer, we may not see the fruits of their labor in this area, but it certainly seems like they can use more advanced algorithms to maintain a certain level of ad targeting.”
Meta has also launched a cost-cutting campaign, with plans to cut 21,000 jobs and flatten out the middle management structure as it works toward Zuckerberg’s goal of turning 2023 into the “year of efficiency.”
Debra Ahu Williamson, principal analyst for Insider Intelligence, said the results indicated that the austerity drive was “a stronger-than-expected start for Meta.”
“In this economic environment – and after the debacle that was in 2022 – 3% year-over-year revenue growth is an achievement. Meta’s strong guidance for Q2 revenue is another indication that the company may be starting to get out of the woods.”
The social media giant faced a bruising 2022 as the pandemic-era e-commerce boom petered out, while rivals like TikTok snapped up younger users, and Apple Inc (AAPL.O) privacy updates cut off access to the user data around which it built its advertising business.
Cost control
Spending on AI retooling fueled the company’s capital expenditures, which came in slightly below expectations at $7.1 billion for the quarter. Analysts expected $7.2 billion in capital expenditures in the quarter, based on the company’s annual forecast of $30 to $33 billion, which was unchanged.
The company has left open the possibility of increased capital expenditures as it builds products for generative AI, an emerging technology that can craft human-like writing, art, and other content.
“Zuckerberg is well aware that his spending habits are being watched very carefully, and any renewed efforts to shift the budget into untested areas will not work well,” said Sophie Lund Yates, senior equity analyst at Hargreaves Lansdowne.
“Having said that, it is very difficult to make your way to the top, which makes Meta walk a very fine line between keeping the lights on and making the future bright enough to excite investors.”
Meta said it continued to expect operating losses to increase in its metaverse-oriented Reality Labs unit in 2023. The company has been investing billions of dollars in the unit, which lost $13.7 billion last year.
Zuckerberg said he remained committed to the investments.
“A narrative has been developed that we are somehow moving away from the focus of the metaverse vision. I just want to say up front: This is not accurate,” he said. “We’ve focused on both AI and Metaverse for years now, and we’ll continue to focus on both.”
Mita trimmed its forecast for annual expenses to between $86 billion and $90 billion, down from the $86 billion to $92 billion it had projected in March, when it announced its second round of layoffs.
The company said its quarterly advertising price fell 17% from a year earlier, while it expects revenue for the current quarter to be between $29.5 billion and $32 billion, compared to analyst estimates of $29.53 billion, according to Refinitiv data.
Net profit for the first three months of the year fell to $2.20 per share from $2.72 a year earlier, but beat expectations of $2.03 per share.
First-quarter revenue rose 3% to $28.65 billion, beating an average estimate of $27.66 billion.
Reporting by Akash Sriram in Bengaluru; Editing by Aaron Kuyor
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