Meta Stock Up 6% as ‘Year of Efficiency’ Pays Off in Q2 Earnings Beat

Source: CNBC

Meta Platforms Inc. (NASDAQ: META) saw its stock surge over 6% on Thursday after the company reported better-than-expected second quarter 2022 earnings results. The social media giant beat Wall Street estimates for both revenue and earnings per share while providing an upbeat outlook for the current quarter.

Analysts attributed Meta’s strong performance to improved ad targeting, increased monetization of its Reels short-form video feature, and cost-cutting initiatives enacted by CEO Mark Zuckerberg.

Earnings Top Estimates as Ad Business Rebounds

On Wednesday after market close, Meta announced Q2 earnings of $2.98 per share on revenues of $32 billion. This handily beat analyst consensus estimates of $2.91 EPS on $31.12 billion in revenues.

The 11% year-over-year revenue growth indicates Meta’s online advertising business is rebounding from pandemic lows. High demand from advertisers boosted average price per ad by 14% compared to last year.

Guidance Signals Continued Momentum

For the third quarter, Meta expects revenues between $32 billion and $34.5 billion. The midpoint of this range exceeds the $31.3 billion analysts predicted.

The company did not provide full-year guidance but said that total 2022 expenses would likely come in at the low end of its forecasted range. This signals Meta’s efforts to optimize efficiency and control costs are bearing fruit.

“We seem to have entered into a period of being very internally focused,” said Zuckerberg on the earnings call. “I think this is the right approach.”

Improved Ad Targeting and Reels Monetization

According to Meta, new ad formats such as ads within Reels and improved analytics drove the ad revenue growth. Early testing indicates ads in Reels generate 2.5x higher engagement versus Feed ads.

Reels now makes up over 20% of time spent on Instagram. And Reels engagement more than doubled year-over-year. This growing engagement led the company to begin globally testing Reels monetization in all markets.

Meta also pointed to investments in AI and machine learning improving ad targeting. The company claims over 3.5 billion people actively use one or more of its AI-powered recommendations daily.

Metaverse Losses Mount But Investments Continue

Meta’s Reality Labs segment, which houses its metaverse efforts, posted an operating loss of $3.7 billion for the quarter. The company warned Reality Labs losses would “increase meaningfully” next year.

But Meta remains committed to its metaverse vision, with CEO Mark Zuckerberg calling it “obviously a very expensive undertaking over the next several years.” He pointed to the long-term goal of reaching 1 billion metaverse users.

Despite the losses, Meta believes its early investments will pay off as the metaverse expands. It is focused on attracting creators and developers to build the next computing platform.

Key Takeaways for Investors

Meta’s return to revenue growth, strong earnings beat, and upbeat guidance signal its ad business is recovering. Improved ad targeting, Reels monetization, and cost cuts are paying off.

With Meta shares still down 50% over the past year, analysts see room for more gains. The company faces uncertainty around its long-term metaverse bets. But its core social media platforms — Facebook, Instagram, and WhatsApp — remain hugely profitable for now.

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