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Meta’s Q2 Earnings Beat Expectations

Plus500 | Thursday 27 July 2023

Social media giant Meta (META), Facebook’s and Instagram’s parent company, revealed its Q2 results to the public yesterday, July 26th following the ring of the closing bell. Yesterday’s report may have come as a pleasant surprise to investors and traders alike, as Meta exceeded predictions on several parameters.

An image of rising charts

Meta Continues Growing

Meta surpassed analyst estimates on both revenue and earnings per share (EPS). The company's revenue for the quarter was $32 billion, higher than the estimated $31.06 billion, bringing Q2 earnings per share to $2.98, six cents higher than expected. Furthermore, Meta provided upbeat guidance for the third quarter of 2023, expecting revenue between $32 billion and $34.5 billion.

It seems that one major driver of these impressive results may have been advertising revenue, with ad impressions growing by 34% year-over-year. Countries in the Asia-Pacific region contributed strongly to this figure, and per ad decreased by 16% over Q2, providing a further boost. Furthermore, Facebook's daily active user count also outpaced predictions, reaching 2.06 billion, higher than the estimated 2.03 billion.

While these encouraging figures were not released until after the trading day concluded on Wednesday, it seems possible that they could provide a tailwind for Meta shares on Wall Street Thursday. Meta stock has increased more than 148% in value so far in 2023.

A chart of Meta's stock prices from the beginning of 2023 up till 27/07/2023

New Technologies Bring Challenges

Despite the aforementioned uptrends, the company faced challenges in its VR division Reality Labs, with operating losses coming in higher than expected. The division lost $3.74 billion in Q2, more than the anticipated $3.68 billion. Meta expects these losses to continue as it invests in augmented reality and virtual reality technologies.

Despite the losses in Reality Labs, Meta remains optimistic about its upcoming product lineup. Meta CEO Mark Zuckerberg highlighted the company's exciting roadmap, which includes Llama 2, Threads, Reels, new Artificial Intelligence (AI) products, and the launch of the Quest 3 VR headset in the fall. He asserted that the Quest 3 would be the first mainstream accessible device for mixed reality, even as competitors like Apple (AAPL) enter the VR market with their own products.

In terms of expenses, Meta foresees rising costs due to higher infrastructure and payroll expenses. The company is shifting its workforce composition toward higher-cost technical roles. As a result, it expects its overall expenses for 2023 to be between $88 billion and $91 billion, higher than the previously projected range of $86 billion to $90 billion.

AI played a significant role in Meta's earnings call, with the company acknowledging the potential of AI products at scale. However, there are uncertainties about the pace of scalability, leading Meta to carefully consider the amount of AI capital expenditure required to meet potential demand.

Overall, Meta's second-quarter performance was strong, with robust revenue and user growth. The company is focused on expanding its AI capabilities and investing in the VR space, particularly with the upcoming launch of the Quest 3 headset. While challenges persist in Reality Labs, Meta remains confident in its future growth prospects. (Source:Yahoo Finance)

Threads Beginning to Unravel?

Threads, Meta's answer to Twitter, saw over 100 million accounts created within a week of its launch on July 5th. However, a steep drop-off in active daily users of 49 million to 12 million was subsequently observed in the two weeks leading up to July 22nd.

Despite aiming to capitalise on users abandoning the venerable microblogging platform Twitter after its takeover by Elon Musk, Threads has struggled to maintain user engagement. On its busiest day, Threads had less than half the number of active daily users compared to Twitter, which averages over 100 million.

Threads promised to be a more positive and friendly social media platform, but it seems to lack some functionalities that users appreciate in Twitter, such as a desktop option and a searchable feature for hashtags, phrases, and names.

On the other hand, Twitter seems to have some drawbacks as well. Musk's controversial policy changes and layoffs at Twitter have led to a decline in advertising revenue and complaints about glitches and hateful speech on the platform. The rebranding of Twitter to "X" may have some impact, but it's unlikely to outweigh other concerns about Musk's management.

It is not yet known how Meta will address the challenges and compete with established platforms like Twitter in the same social media niche going forward.

All in all, yesterday’s earnings call was strongly positive for Meta, but several issues may face the company going forward. It remains to be seen how traders will react to Wednesday’s figures as well as how Meta will fare over the second half of 2023.

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