Meta Earnings Surge 73%, Stock Climbs

Meta Platforms Inc. reported a robust 73% increase in profits for the second quarter, sending its stock soaring as investors responded to the company’s impressive financial performance. Despite ongoing challenges and mounting losses from its ventures outside its core social media business, Meta’s dominant advertising segment delivered substantial gains, overshadowing concerns over its experimental projects.

Meta’s revenue for Q2 hit $39.1 billion, surpassing analyst predictions of $38.3 billion. The company’s earnings per share (EPS) reached $5.16, significantly exceeding the anticipated $4.72, while net income stood at $13.5 billion against an expected $12.3 billion, according to data from FactSet. This strong performance was driven by the company’s well-established advertising operations, which remain a critical source of revenue despite the company’s broader diversification efforts.

Looking ahead, Meta has projected third-quarter revenue to range between $38.5 billion and $41 billion. The midpoint of this forecast, $39.8 billion, is notably above the consensus estimate of $39.1 billion, suggesting continued strong performance. In addition, Meta expects its full-year expenses to fall between $96 billion and $99 billion, aligning with previous forecasts. However, the company has slightly adjusted its capital expenditure range upward from $35 billion to $40 billion to $37 billion to $40 billion, reflecting ongoing concerns about investments in the competitive artificial intelligence sector.

Following the earnings announcement, Meta’s stock jumped more than 5%, adding to a recent 3% gain but still down over 10% from its highs in the past three weeks amidst a broader technology sector downturn. This rebound underscores investor confidence in Meta’s financial health and strategic direction.

Despite the overall positive financial results, Meta’s Reality Labs division, which encompasses its metaverse and augmented/virtual reality projects, reported a significant quarterly loss of $4.5 billion. This marks the largest operating loss for the segment since its inception in 2021 and aligns with pre-earnings forecasts. Reality Labs continues to be a high-cost area for Meta, reflecting the broader industry challenges and skepticism surrounding the viability of large-scale metaverse investments.

At its core, Meta remains a social media powerhouse. Since rebranding from Facebook to Meta in October 2021 to emphasize its metaverse ambitions, the company has continued to derive almost all of its revenue from its social media platforms, including Facebook, Instagram, and WhatsApp. These platforms generate around 99% of Meta’s total sales, predominantly through advertising. This heavy reliance on advertising mirrors the business model of Google parent Alphabet, although Meta’s ad revenue is roughly half of Alphabet’s.

Meta’s stock has experienced considerable volatility since its name change, plummeting nearly 80% from its peak in September 2021 to a low in November 2022. This downturn was driven by a combination of factors, including a challenging macroeconomic environment that led to reduced advertising spend and substantial investments in the metaverse that did not immediately pay off. The company also faced five consecutive quarters of year-over-year profit declines during this period.

However, 2023 has marked a turnaround for Meta, as CEO Mark Zuckerberg declared the year as a “year of efficiency.” This shift in focus involved significant cost-cutting measures, including a reduction in workforce by 20,000 employees. These efforts have yielded results, with adjusted earnings showing annual growth of 40% or more over the past five quarters. The stock has rebounded impressively, trading more than 20% higher than its 2021 peak as of Wednesday, and reflecting a nearly 300% increase since the beginning of last year, despite a recent 10% drop in July.

In addition to its strong earnings performance, Meta has announced its first-ever quarterly dividend of $0.50 per share, starting in March. This move signals a new phase of financial maturity and stable cash flow for the Silicon Valley tech giant, aligning with its evolving strategic priorities.