Meta returned to top-line growth in Q1, results released after the bell on Wednesday showed.
Sales of $28.65 billion grew 2.6% versus the same period last year and easily topped estimates. Consensus expected $27.67 billion.
Better still, Meta guided well above the Street for Q2. Revenue will be between $29.5 billion and $32 billion during the current quarter, the company projected. Analysts expected $29.48 billion.
Taking the midpoint of the guide, top-line growth would be near 7% in Q2.
In 2022, revenue declined on a YoY basis for consecutive quarters, unnerving investors already impatient with Mark Zuckerberg’s increasingly expensive metaverse pivot. Last quarter, Zuckerberg promised a “year of efficiency,” where that meant, among other things, thousands of additional job cuts.
The shares have rebounded smartly off the October lows, thanks in no small part to Zuckerberg’s cost-cutting pledge and a less aggressive expense outlook. After falling more than 75% from 2021’s highs, the stock has doubled — and then some.
On Wednesday, Meta said expenses will be between $86 billion and $90 billion for the full-year. That was unchanged from the new, lower range tipped last month. The company’s outlook includes $3 billion to $5 billion in restructuring costs.
Reality Labs continued to bleed red ink. The Q1 operating loss in the metaverse division was nearly $4 billion, less than Q4, but the second-largest yet.
Notably, revenue in Reality Labs was just $339 million, nowhere near the $613 million the Street expected.
Thankfully, the rest of Meta’s report more than compensated for the metaverse distraction. Ad revenue of $28.1 billion beat by $1.34 billion, and operating income across apps blew away consensus at $11.22 billion. EPS of $2.20 was a 20-cent beat. Facebook daily active users topped estimates too.
The job cuts announced last year are largely complete, the company suggested. Headcount fell 1% YoY. “We had a good quarter and our community continues to grow,” Zuckerberg said.
It’ll be interesting to see how he approaches AI going forward. The metaverse hype has almost completely evaporated in favor of voluminous ChatGPT press coverage. “Our AI work is driving good results across our apps and business,” Zuckerberg remarked on Wednesday afternoon.
Taken with Tuesday’s solid results from Microsoft and Alphabet, Meta’s revenue beat and guide pretty clearly suggest the worst fears for tech earnings aren’t going to materialize this quarter. Although Amazon and Apple could still disappoint, America’s tech titans have delivered a clean sweep so far.
It’s remarkable what a chunky RIF can do for margins, while easier comps and weaker USD help out the topline.
Since investors have given up complaining about Reality Labs spending, RL can be a slush fund to keep META’s AI and other spending out of the FOA segment.
Investors want layoffs and more layoffs – its becoming “RIF porn” out there – and META has a third phase of layoffs coming in May plus no-one thinks Zuckerberg is too kind to cut deeper if there are more efficiencies to find.
META and GOOG are both attractively valued – not in a classical “value stock” sense, but they throw off so much cash that you don’t have to be too aggressive with growth assumptions to get price targets nicely higher – but META’s existential threat moment appears to be behind it (AAPL can’t pull the privacy rug out twice) while GOOG’s is still ahead of it (it will be a year before we get clear signs of whether AI is a net + or – for Search).
Yes, revenue growth ex-FX is hardly keeping up with inflation, but I’ll guess investors will give a pass on that for another quarter or two.