Meta Platforms Inc. chalked up its most profitable quarter since 2021, beat analysts forecasts on earnings and revenue, and offered strong guidance for the current period, sending its stock up 7% in after-hours trading.

The Facebook parent company reported second-quarter earnings before certain costs such as stock compensation of $2.98 per share, ahead of the $2.91 per share forecast by analysts. Revenue rose 11%, to $32 billion, the first-double digit growth it has reported since the end of 2021. That number came in well ahead of Wall Street’s target of $31.12 billion.

Prior to turning itself around in the first quarter, Meta had suffered three consecutive quarters of declining revenue as it struggled against a stuttering economy and privacy changes introduced by Apple Inc. that made it harder to target advertising.

Investors were particularly thrilled to hear that more revenue growth is on the way. Looking ahead, Meta offered a forecast of between $32 billion and $34.5 billion in third quarter revenue, some way ahead of the analyst consensus estimate of $31.3 billion. The midpoint of that range suggests growth of 15%.

Meta has been on a roll this year as investors anticipate a rebound in the online advertising market and foresee better profits after the company laid off thousands of workers earlier this year. Before today’s spike, Meta’s stock had already gained 159% in the year to date, compared with just 19% in the S&P 500. It marks a strong recovery from last year, when Meta’s stock lost almost two-thirds of its value.

Madison & Wall analyst Brian Wieser said Meta is benefiting from a turnaround in the digital advertising industry, which is likely to grow in the high single digits this year, contrary to many people’s earlier estimates. “The second quarter was very strong with constant currency advertising growth of 12%,” Wieser said. “Products such as Advantage+ were cited as a key factor in the outcome.”

Meta Chief Executive Mark Zuckerberg said in a statement the company had delivered a strong quarter. “We continue to see strong engagement across our apps and we have the most exciting roadmap I’ve seen in a while with LLaMA 2, Threads, Reels, new AI products in the pipeline, and the launch of Quest 3 this fall,” he added.

The company reported net income for the period of $7.79 billion, while its daily active user count came to 2.06 billion, above the 2.04 billion forecast. Monthly active users were reported as 3.03 billion versus 3 billion expected, while average revenue per user clocked in at $10.36, beating Wall Street’s forecast of $10.22.

The results show that Meta is more resilient than many people had guessed, including Mark Zuckerberg himself, said Holger Mueller of Constellation Research Inc. “This surprising resilience means Meta has been able to keep investing in its key initiatives, such as Threads, the metaverse and artificial intelligence,” he explained. “The investments meant Meta’s costs grew at the same pace as its revenue did, so profitability did not move. But that is a good outcome under the circumstances.”

On a conference call with analysts, Zuckerberg addressed the company’s product roadmap and had a lot to say about Threads, which is the company’s new Twitter-killing short-text social app. “I’m quite optimistic about our trajectory here,” he stated, pointing out that it accrued almost 100 million users in just three days of its launch.

“We saw unprecedented growth out the gate and more importantly, we’re seeing more people coming back daily than I had expected,” Zuckerberg continued. Now, he said the company is focused on retaining those early adopters and improving the app. After that, the plan is to scale up the app as big as it can go, before finally focusing on monetization.

“We’ve run this playbook many times before with Facebook, Instagram, WhatsApp Stories, Reels and more,” Zuckerberg said. “And this is as good of a start as we can hope for.”

The CEO also mentioned how Threads was built with a relatively small team, which plays into another key theme Meta has been promoting lately, its “year of efficiency.”

The initiative was announced earlier this year, and is all about Meta becoming more cost-efficient. It resulted in a cost-saving plan that claimed around 21,000 jobs at the company. That effort seems to be working, with Meta revealing total costs and expenses of $22.61 billion in the second quarter, up 10% from a year earlier.

Zuckerberg explained that the year of efficiency has two different goals – becoming a stronger technology company and improving its finances, so it can invest more aggressively in its longer-term plans. “Now that we’ve gotten through the major layoffs, the rest of 2023 will be about creating stability for employees, removing barriers that slow us down, introducing new AI power tools to speed us up,” he said. “Over the next few months, we’re going to start planning for 2024. And I’m going to be focused on continuing to run the company as lean as possible.”

As a result, Meta said it expects its capital expenditures to come to about $27 billion to $30 billion in the current fiscal year, down from a prior range of $30 billion to $33 billion. Zuckerberg said the lower forecast stems from cost savings on non-AI servers, plus a shift in some capital spending to fiscal 2024, given project delays and equipment deliveries, as opposed to an overall reduction in investment.

Meta’s expenses will then grow in 2024 as the company doubles down on its data center and artificial intelligence bets, Zuckerberg added.

The biggest concern for investors now seems to be the ongoing drain on resources that is Meta’s Reality Labs business, which encompasses its more speculative bets on the metaverse, virtual reality and augmented reality. Revenue from Reality Labs decreased 39%, to $276 million, while its operating loss rose to $3.74 billion in the quarter, from a loss of $2.81 billion a year earlier.

In its report, Meta said it expects Reality Labs’ losses to increase meaningfully year-over-year in 2024 due to its ongoing product development efforts. However, it insisted that the metaverse and AI remain the company’s most compelling long-term opportunities.

Photo: Robert Hof/SiliconANGLE