• by Colin Kirkland , Laurie Sullivan  @lauriesullivan, July 31, 2024

In its latest earnings report, Meta surpassed Wall Street’s expectations for the second quarter.

The tech giant increased ad revenue on its family of apps -- including Facebook and Instagram, which have been under fire for hosting ads that link users to illegal drug markets, according to an article published by The Wall Street Journal early Wednesday.

Meta saw a 4% rise in the stock market following the report.

Meta's revenue from Facebook, Instagram, WhatsApp and Messenger was $38.7 billion -- exceeding Wall Street's estimated $37.7 billion.

The company increased its revenue from the second quarter of 2023 by over $7 billion.

For the second quarter, Meta saw earnings per share (EPS) of $5.16 on revenue of $39.07 billion, beating analysts' expected EPS of $4.74 on revenue of $38.3 billion, according to Bloomberg.

For comparison, the company recorded EPS of $2.98 on revenue of $39.9 billion during the same period last year.

Meta's Reality Labs sector, recently reorganized into “Wearables” and “Metaverse” factions, saw a revenue of $353 million in the quarter, which did not live up to expectations of $376 million.

The segment -- which has been losing money since its creation -- lost $4.49 billion in the second quarter, compared to $3.8 billion in the first quarter of 2024.

The company also warned analysts that it expects to see “significant” capital expenditures growth in the year ahead, stating that it expects infrastructure costs to be a major driver of expense growth as the company recognizes depreciation and operating costs associated with its expanded infrastructure footprint.”

“While impression growth has slowed a bit, Meta's careful introduction of ads on Reels has led to a perfect storm of rising impressions and rising ad prices,” eMarketer Principal Analyst Max Willens stated in an email to MediaPost.

“With its margins as healthy as they are, Meta's investors should feel comfortable with the company's vigorous investments in its plans for the future," Willens added.

Although it has surpassed many of Wall Street's expectations, however, a portion of Meta's ad revenue is allegedly coming from ads that link Facebook and Instagram users to illegal drug markets, bringing to mind a recent federal investigation into whether or not Meta was complicit in the sale of illegal drugs on its family of apps.

According to The WSJ, Meta “has continued to collect revenue from ads that violate its policies, which ban promoting the sale of illicit or recreational drugs.”

A review conducted by the publication this past month identified “dozens of ads marketing illegal substances such as cocaine and prescription opioids” as recently as last week.

A separate analysis from the watchdog known as Tech Transparency Project found hundreds of these ads, which often redirect users to other platforms where they can make purchases.

The WSJ reported the use of photos to showcase that the drugs appear to make it possible for the ads to bypass Meta' automated content-moderation systems, but the company also had layoffs leading to a reduction for its content-moderation teams.

“Our systems are designed to proactively detect and enforce against violating content, and we reject hundreds of thousands of ads for violating our drug policies,” a Meta spokesperson told The WSJ. “We continue to invest resources and further improve our enforcement on this kind of content.”

The spokesperson also sent a message to those suffering from “tragic consequences of this epidemic.”

Facebook pages or Instagram accounts associated with the ads require users to click on the message. The WSJ described the pages as including non-sponsored photos or posts of drug-related content.

Some accounts use names, making it clear they are for the transaction of drugs, such as an ad for DMT. That ad was posted by an account called “DMT Vapes and Notes.”

Sometimes the ad click takes users to private group chats off Meta's properties to the app Telegram. The group chats typically show a stream of posts from the dealers that include photos of the drugs offered as well as menus with prices and instructions for placing orders, according to the WSJ and analysis from Tech Transparency Project.

For comparison, in Google’s policy with regard to dangerous products or services -- part of the company's prohibited content advertising policy -- does not allow ads for substances that alter a person's mental state for the purpose of recreation or otherwise induce "highs;" ads for products or services marketed as facilitating recreational drug use such as pipes and bongs or cannabis coffee shops; and ads for instructional content about producing, purchasing or using recreational drugs.

Meta disabled many of the drug ads identified by the WSJ since the report’s publication, according to a company spokesperson, who added that the users responsible for creating the ads have been banned from the platform.

While Section 230 of the Communications Decency Act generally exempts online platforms like Meta from liability for third-party posts, this is the second time in the past six months that Meta has been tied to advertisements linking users to illegal drug selling markets.

Prosecutors reportedly sent Meta subpoenas in 2023 seeking records on “violative drug content on Meta’s platforms and/or the illicit sale of drugs via Meta's platforms,” yet despite the tech giant stating that it would “proactively cooperate” with law enforcement to combat the issue, the new report raises renewed doubt that Meta is able to prevent the sale of drugs on its platforms.