• by Colin Kirkland , April 25, 2024

Although Meta shares took a significant hit after its latest earnings numbers were released Wednesday, the tech giant showed promising current and future advertising growth expectations, with a deepening focus on video, artificial intelligence and virtual reality.

Meta's first-quarter report shows revenue increasing at the fastest rate for any quarter since 2021 -- growing by 27% to $36.5 billion.

Due to a significant drop in sales and marketing costs (16% from Q1 2023), net income grew from $5.7 billion a year ago to $12.4 billion.

The company expects sales in Q2 to be somewhere between $36 billion and $39 billion.

With daily active users across its family of apps -- a new metric Meta is using in place of app-specific daily active users -- came out to 3.24 billion on average for March 2024, marking an increase of 7% year-over-year.

However, it is difficult to determine how its individual apps -- Instagram, WhatsApp and Facebook -- performed based on this report.

The same can be said for the company's ad impressions, which increased by 20% year-over-year across Meta’s apps, with average price per ad increasing by 6%.

Overall, Meta earned $7.5 billion in new ad revenue compared to last year's first quarter, with AI-driven ad products contributing greatly to the company's revenue growth. Ad spend via Advantage+ Shopping and Advantage+ App Campaigns has more than doubled since last year.

“We are getting better at adjusting the placement and number of ads in real time based on our perception of a user's interest in ad content,” said Meta CFO Susan Li during the company’s earnings call Wednesday.

In addition, since Meta made Advantage+'s automated audience builder the default campaign targeting method for the majority of advertisers last year, campaigns using the AI-driven feature have seen a 28% decrease in cost per click on average, according to Li.

The company is continuing to build out Lattice, its new AI ads ranking architecture, and has introduced 10 additional conversion types to Advantage+ Shopping that advertisers can optimize against.

Meta remains reliant on the U.S. and Canada for the majority of its ad intake, but is showing the potential for future growth in other regions.

Growth from locally based advertisers was up by 23% in Europe and 28% in the “Rest of World” category, which includes Brazil. Advertising revenue in the Asia-Pacific region increased by 41% year-over-year, making it the fastest growing region due to online commerce and gaming.

Furthermore, video now represents over 60% of time spent on both Facebook and Instagram, with Meta's short-form video product Reels making up 50% of time spent on Instagram alone.

Meta says it will continue to invest in its video offerings including the full-screen video player it launched at the beginning of the month.

Investors were likely concerned after the earnings call due to Meta’s Reality Labs numbers. The company's virtual reality department continues to cost the company billions ($3.8 billion in Q1), as its Quest headsets see minimal uptick in sales. Though Meta says its Ray-Ban Smart Glasses, which will soon be equipped with multimodal AI and new styles, sales are increasing.

Despite this week’s announcement to open up Meta Horizon OS to outside hardware developers and partnering with major tech brands like Xbox and Lenovo, the metaverse is a long-term vision that cost $17 billion in 2023 and is on track to do the same this year.

But the company is hopeful, with CEO Mark Zuckerberg claiming that Reality Labs is serving the company’s AI efforts and is intrinsically linked to the success of its family of apps.

“Over time, we'll need to find better ways to articulate the value that’s generated here across both segments so it doesn’t just seem like our hardware costs increase as our glasses ecosystem scales while all the value flows to a different segment,” said Zuckerberg, adding that the company expects capital expenditures to increase next year as it continues to invest in AI.