Meta's financial report shines with AI boosting its advertising revenue, while the metaverse continues to incur losses.

Social media giant Meta announced third-quarter earnings that exceeded expectations, with revenue growing by 23% compared to the same period last year, marking the fastest growth in 2021. However, yesterday, dragged down by the overall market and following comments from its CFO Susan Li warning of potential ad weakness related to the conflict in the Middle East, the stock fell an additional 3% after hours. Meta's stock has risen by approximately 140% this year, ranking second among companies in the S&P 500 index, just behind AI chip manufacturer Nvidia.

Meta Reports Strong Financial Performance with Revenue Growth and Cost Reduction

Meta's third-quarter earnings exceeded expectations, with its core digital advertising business experiencing rapid growth as customers gradually recover from the challenges of 2022. Advertising revenue surged from $27.2 billion to $33.6 billion compared to the same period last year, leading to an overall revenue growth of 23% from the same quarter last year.

Total costs and expenses decreased by 7% year-on-year, highlighting Mark Zuckerberg's "Year of Efficiency" declaration in February, emphasizing the need for a leaner and more flexible workforce. As of September 30, Meta had 66,185 employees, a 24% decrease from the previous year. The company stated that the "vast majority of employees" involved in its major cost-cutting efforts are no longer included in its headcount.

Meta's net profit increased by 164% from $4.4 billion in the same period last year to $11.58 billion, with EPS growing from $1.64 to $4.39.

Utilizing AI to Enhance Online Ad Effectiveness

One key reason for Meta's reacceleration appears to be its outstanding performance in improving online ad effectiveness following Apple's 2021 changes to iOS privacy. Meta stated that its substantial investments in artificial intelligence are a key technology that has attracted retailers looking to provide targeted promotional campaigns for their customers.

CEO Mark Zuckerberg mentioned in the earnings call:

"Due to our recommendation improvements," overall customer spending on Facebook has increased by 7% and on Instagram by 6% year-to-date.

However, Meta has recently faced accusations and lawsuits from various U.S. states, alleging that it uses advanced algorithms and like features to engage teenagers endlessly, causing harm to their mental and physical health.

Meta Faces Lawsuits from 41 U.S. States for Manipulating Teenagers, Files: Algorithms Keep Them Engaged in Social Media

Continued Losses in the Metaverse Sector

Meta's money-burning division Reality Labs in the metaverse sector reported revenue of $210 million, which continues to decline, with a third-quarter loss of $3.74 billion. Since the beginning of last year, the division has incurred nearly $25 billion in losses—this is after the release of the Quest 3 headset and other metaverse-related products.

Meta's Stock Price Shows Strong Performance This Year, Up 1.4 Times

Despite a decline in stock price following the earnings report, Meta's stock has risen by 140% this year, ranking second among companies in the S&P 500 index, just behind AI chip manufacturer Nvidia at 181%. The S&P 500 index's year-to-date increase has now dropped to 8.6%.