Meta has managed to please the markets with its latest results announcement, which describe a difficult environment in which to do business but also point to the areas in which Facebook needs to strengthen and seek growth in its advertising business – now surrounded by investor-pleasing mentions of AI.
But efficiency was the key word, an intention that the company signalled in November with layoffs of around 13% of staff. On top of this, expenses are to be lowered by $5bn. Part of the story is signalling responsibility.
Why it matters
The markets are fickle things. Meta’s overall revenues are still in decline, its profits remain diminished, its much-derided Reality Labs (the metaverse unit) is making less revenue and losing more money than it was last year. However, by bolstering talk of its significant data centre investments as an AI play, and piously reiterating its ‘year of efficiency’ mantra, it appears to have earned back some of its confidence.
What is clear from Meta’s Q4 results is that, following an extended period of being at the mercy of external headwinds, the company has managed to regain control of the narrative, after last quarter’s difficult results.
Its work on AI looks to growth rather than toward Apple’s rule changes; its work on Reels no longer looks like it's desperately chasing TikTok’s runaway growth; advertiser demand may be diminished, but it has measurement systems in the pipeline to get some of it back; the metaverse remains expensive but is currently – and thankfully for Meta – overshadowed by the other stories.
Users are back
One of the fundamental pieces of good news in the report was that user numbers were growing again. Monthly active persons (it has abandoned the term ‘users’) across the Meta family of apps grew by 4%, while Facebook monthly users grew by 2%.
Positive news in user growth matches positive news in revenue growth (at least on a ForEx adjusted basis) which would have been on 2% year-on-year for the quarter and 4% for the full year on a constant currency basis. Given the fluctuations of other currencies against the dollar revenues declined 4% and 1% respectively. Profits remain diminished, with net income dipping by 55% over the quarter.
The ad demand environment according to Meta
Q4 was, as expected, a period of weak ad demand which Meta puts down to an uncertain and volatile macroeconomic environment. Growing that demand is now a key priority.
“We see opportunities for continued gains in the near and medium-term, with our AI investments powering a lot of this work as we continue to improve ads ranking and enable increased automation for advertisers to make it easier for them to run campaigns and use our systems to optimize their performance,” Li explained.
At the level of Meta’s vitally important small and medium-sized business user base, uncertainty was a factor that led to a decrease in spend over all year on year.
At the major advertiser level, Meta still saw declines in the largest industries – online commerce and CPG – advertising on the platform, even if that decline has slowed versus Q3, Li explained. “The largest positive contributors to year-over-year growth in Q4 were the travel and healthcare verticals, though both are relatively smaller verticals in absolute share.”
AI to the rescue
“The two major technological waves driving our roadmap are AI today and over the longer term, the metaverse”, CEO Mark Zuckerberg explained on a call with analysts. However, it’s quite telling that the word metaverse arose just seven times versus AI’s 29 mentions. In November, the company even flexed its muscles in the space with an announcement about its potent Cicero AI, which WARC covered here.
“AI, it’s the foundation of our discovery engine and our ads business. And we also think that it’s going to enable many new products and additional transformations in our apps,” Zuckerberg told investors. The company now fully recognises that the old world of tracking across apps is now gone, hence the focus on new measurement techniques.
“We are continuing to make progress in mitigating the impact from the ATT change”, explained CFO Susan Li on the same call. “But this is more generally just the reality of the online advertising environment that we operate in now.” A significant aspect of the company’s ad strategy now is to “bring conversions on site”, Li continued, and noted that work and investment on these kinds of ad formats was ongoing.
Zuckerberg sounded confidence in these systems. “In the last quarter, advertisers saw over 20% more conversions than in the year before. And combined with the decline in cost per acquisition, this has resulted in higher returns on ad spend.” Ad impressions also grew 23% in Q4 year on year.
The computing power required puts into perspective the $30-$33 billion expenditure outlook in the coming year (though this is less than initially proposed).
While Zuckerberg also expressed an intention to become a leader in generative AI, he also acknowledged the considerable expense incurred by generation – “one of the big interesting challenges here is going to be how do we scale this and make this work more efficient.” Look out for Meta generative AI tools this year.
The short video conundrum
Reels, Meta’s short-form video platform most commonly compared to TikTok, has been in the news recently as the company debates how and when to begin sharing ad revenues with creators, and therefore supercharging its use. But the work on Reels goes deeper now that the company is pivoting to monetising the technology, having grown at a significant cost.
Reels is currently far less efficient at monetization than the highly optimised Facebook of Instagram Feeds, to the extent that Reels actually loses the company money even though it grows engagement, because it takes away time watched from money-making parts of the app. Zuckerberg told investors that progress is being made, with monetisation efficiency doubling over the last six months.
Sourced from Meta, Seeking Alpha, TechCrunch, WARC