Net profit surged by 164%! Meta's third quarter revenue increased by 23% year-on-year to $34.1 billion, with a net profit of $11.6 billion

On Wednesday, October 26th, local time in the United States, Facebook parent company Meta released its financial report for the third quarter of 2023 as of September 30th. According to the financial report, Meta's revenue in the third quarter was $34

On Wednesday, October 26th, local time in the United States, Facebook parent company Meta released its financial report for the third quarter of 2023 as of September 30th. According to the financial report, Meta's revenue in the third quarter was $34.146 billion, a year-on-year increase of 23%; The net profit was 11.583 billion US dollars, a year-on-year surge of 164%; Diluted earnings per share were $4.39, a year-on-year increase of 168%. Due to its performance far exceeding market expectations in the third quarter, Meta's stock price rose by over 4% in after hours trading.

Here are the key points of Meta's third quarter financial report

Divided by business

Executive comments

Mark Zuckerberg, founder and CEO of Meta, said, "Our community and business have performed well this quarter. I am proud of the work our team has done in promoting artificial intelligence and hybrid reality, including Quest3, Ray BanMeta smart glasses, and our artificial intelligence studio

Interpretation of financial reports

Meta announced its largest quarterly revenue growth since its listing more than 10 years ago, due to rising advertising demand, as the company continues to benefit from cost cutting and developing new artificial intelligence technologies. The company's performance in the third quarter also exceeded market expectations, with revenue growth of 23%, the fastest growth rate since 2021. As customers rebound from the difficult year 2022 (with revenue declining for three consecutive quarters), Meta's core digital advertising business has grown rapidly, accounting for 98.5% of Meta's total revenue.

Meta's business performance outperforms its competitors. Google's parent company Alphabet stated in its financial report on Tuesday that advertising revenue increased by about 9.5%, while smaller competitor Snap's revenue only increased by 5%.

The re acceleration of Meta seems to be largely due to the significant progress made by Meta in improving its online advertising effectiveness after Apple's iOS privacy reform in 2021 made it difficult for application developers to target users. Meta's revenue decreased by $10 billion in 2022, with an improvement in its advertising business being a key factor in its rebound. Meta points out that its significant investment in artificial intelligence is a key initiative to help retailers seek targeted promotions for customers.

Zuckerberg also mentioned competition during a conference call, stating that Reels is a short video format imitated by TikTok on Instagram and Facebook. Since its launch, Reels has accounted for over 40% of users' time spent on Instagram. He stated that Reels' current contribution to the company's overall revenue is' net neutral ', which means that its advertising revenue is comparable to other areas of Meta applications.

Zuckerberg said that Meta launched a Twitter like service Threads three months ago, and currently has less than 100 million monthly active users.

Meta stated that it expects revenue to be between $36.5 billion and $40 billion in the fourth quarter, compared to analysts' previous expectations of $38.85 billion. At the midpoint of this range, the year-on-year growth rate of revenue in the fourth quarter will be around 19%. The company expects expenses to range from $87 billion to $89 billion in 2023, lower than the previous forecast of $88 billion to $91 billion. The total expenditure for 2024 will be between $94 billion and $99 billion.

The revenue of Meta's reality laboratory, which focuses on augmented reality (AR) and virtual reality (VR) technology, decreased by 26% in the third quarter from $285 million a year ago to $210 million, resulting in an operating loss of $3.74 billion. Analysts had previously expected the department to have a revenue of $299.3 million and an operating loss of $3.9 billion. Since the beginning of last year, the department has lost nearly $25 billion, and this is after the release of Quest3 headsets and other new products. Zuckerberg predicts that the operating losses of the department will continue to increase significantly year-on-year.

Although Meta invests billions of dollars in VR and AR every quarter, attempting to turn Zuckerberg's metaverse dream into reality, this market is still in its infancy. Developers attending Meta's recent Hybrid Reality Connect conference stated that Apple's imminent entry into the VR market may help accelerate the industry's development and push it into the mainstream.

Meta's approach in artificial intelligence competitions differs from other large technology companies. To a large extent, the company has released research or large language models (technologies that support artificial intelligence chat robots) for developers to use for free. Meta believes that this open source strategy will help improve technology faster.

At the developer conference in September, Meta launched its first generative artificial intelligence feature to consumers, including image editing tools for chat robots launched for platforms such as Instagram and Facebook. In this event, Zuckerberg also expanded his vision for the metaverse, including augmented reality, covering the real world with computer-generated images. The company has announced an updated version of its smart glasses, developed in collaboration with sunglasses manufacturer Leipeng, as well as a new VR head display Quest3.

As of September 30th, Meta had 66185 employees, a decrease of 24% year-on-year. The company stated that the "vast majority of employees" are no longer included in the total number of employees, as Meta had previously made large-scale layoffs to reduce costs and increase efficiency. Starting from 2022, we have taken several measures to improve efficiency and realign our business and strategic priorities. As of September 30, 2023, we have basically completed our layoff plan and continue to evaluate facility integration and data center restructuring plans

Meta's total costs and expenses in the third quarter decreased by 7% compared to the same period last year, to $20.4 billion, confirming Zuckerberg's "Year of Efficiency" goal announced in February this year, when he emphasized the need to build a more streamlined and flexible workforce.

CFO Performance Outlook

Meta expects total revenue in the fourth quarter of 2023 to be between $36.5 billion and $40 billion. Based on the current exchange rate, the company expects its total revenue to increase by approximately 2% year-on-year in the fourth quarter.

Meta predicts that the total expenditure for the entire year of 2023 will be between $87 billion and $89 billion, lower than the previous estimate of $88 billion to $91 billion. This includes approximately $3.5 billion in restructuring costs related to facility consolidation costs, severance payments, and other personnel costs. Meta predicts that RealityLabs' operating losses in 2023 will increase year-on-year.

Meta also shared a preliminary outlook on expenses, capital expenditures, and tax rates for 2024. The company expects total expenses for the entire year of 2024 to be between $94 billion and $99 billion, with the following factors becoming the driving factors for the growth of total expenses in 2024:

Firstly, Meta expects infrastructure related costs to increase next year. Given its increased capital investment in recent years, the company expects depreciation expenses to increase more in 2024 than in 2023, while operating larger infrastructure will result in higher operating costs.

Secondly, Meta will change its current recruitment strategy and increase talent to support priority areas in 2024. The company expects salary expenditures to increase, which will continue to shift its workforce towards higher cost technical positions. Zuckerberg stated on the earnings conference call that Meta will "continue to lower the priority of non artificial intelligence projects" during recruitment.

Finally, for the real laboratory, due to Meta's continuous product development work in AR/VR and further expansion of ecosystem investments, the company expects operating losses to significantly increase year by year.

Meta expects capital expenditure to be between $27 billion and $29 billion in 2023, compared to previous estimates of $27 billion to $30 billion. The company expects capital expenditure for the entire year of 2024 to be between $30 billion and $35 billion, with growth mainly coming from server investments, including non artificial intelligence and artificial intelligence hardware, as well as data centers, as Meta announced a new data center architecture at the end of last year, accelerating on-site construction.

If there are no changes in US tax laws, Meta expects the tax rates for the fourth quarter of 2023 and the entire year of 2024 to be similar to those for the third quarter of 2023.

Please note that Meta's outlook for expenses, capital expenditures, and tax rates for 2024 is only a preliminary estimate, and it is expected that the company's executives will provide preliminary annual expenses, capital expenditures, and tax rate outlook during the fourth quarter conference call.

In addition, Meta will continue to monitor the active regulatory environment, including the increasing legal and regulatory barriers in the European Union and the United States, which may have a significant impact on Meta's business and financial performance. It is worth noting that the Federal Trade Commission (FTC) is seeking significant modifications to the company's existing consent order and imposing additional restrictions on its operational capabilities. Meta is currently defending this matter, but if it fails, it will also have an adverse impact on the company's business.

Changes in stock prices

On Wednesday local time in the United States, Meta's stock price closed down 4.17% at $299.53 per share. Thanks to revenue and net profit exceeding market expectations, the stock rose by over 4% in post hours trading. As of press release, Meta's post market trading fell by 3%.

Meta's stock price has risen by about 150% this year, ranking second among the S&P 500 index components, after artificial intelligence chip manufacturer Nvidia. Based on Wednesday's closing price, Meta's market value is approximately $804.2 billion. (Small)