Meta Platforms released its first quarter (Q1) earnings report on Wednesday, indicating a massive loss of revenues for its Realitiy Labs division.
This comes despite stronger-than-expected profits at the start of 2023. This has sent shares skyrocketing following the company’s earnings report amid its ‘Year of Efficiency’ plans to streamline operations.
The report noted that its Reality Labs division saw a 51 percent drop in revenues “due to lower Quest 2 sales” at $339 million USD. It expenses also topped $4.3 billion, up 18 percent, amid its ongoing restructuring and employee-related costs, and its operating losses stood at $4 billion USD.
The Menlo Park-based firm has struggled to rein in its expenses and restructure operations after haemorrhaging profits over the last few quarters. Much of this was due to its Reality Labs division, which delivered disappointing figures due to slow adoption rates and a costly research and development (R&D) tab of over $10 billion USD.
The tech giant also cut its estimates for 2023 by around $3 billion USD and forecast by $5 billion USD in its February earnings. News of this comes after a massive wave of layoffs, with an initial 11,000 employees in November and a further 10,000 in April.
Meta Q1 Layoff Announcements
The firm explained that it had announced “three rounds of planned layoffs” in March. Meta aims to reduce its workforce by 10,000 employees “across the Family of Apps (FoA) and Reality Labs (RL) segments.”
It continued, stating,
“In connection with these layoffs, we expect to incur total pre-tax severance and related personnel costs of approximately $1 billion, of which $523 million was recognized during the first quarter of 2023 and the remaining charges will be substantially recorded by the end of 2023”
In the investors’ call, Zuckerberg also highlighted the firm’s round of technical worker layoffs last week and told investors to expect more job cuts in its business divisions in May. Following the restructuring, Li added that the company would “resume hiring and we would expect headcount growth in excess of one to two percent in 2024.”
Conversely, Meta reported around $28.6 billion USD in revenues or $2.20 in earnings per share in its Q1 reports. These beat expectations of $27.7 billion USD and $2.02, respectively, from global analysts.
News of the earnings saw Meta’s shares rally 10 per cent, leading to its best performance since February last year. According to Forbes, Mark Zuckerberg, Chief Executive, Meta gained roughly $8.4 billion in net worth due to the rise in stock prices.
Meta’s Metaverse Plans in Q1
Despite ongoing troubles with its Metaverse plans, Zuckerberg aims to continue spending on the spatial communications platform.
Reality Labs posted a $4 billion USD loss in Q1, a slight decrease from $4.3 billion USD in losses from Q4 2022. The division also earned roughly $339 million USD in sales for the period.
Zuckerberg will continue developing its’ metaverse ambitions while focusing on the enterprise’s artificial intelligence (AI) solutions. Many of these aims to facilitate business messaging services, advertising, and others.
Zuckerberg said in a statement,
“A narrative has developed that we’re somehow moving away from focusing on the metaverse division, so I just want to say upfront that that’s not accurate. We’ve been focusing on both AI and the metaverse for years now and we will continue to focus on both. The two areas are also related.”
Zuckerberg also explained in the call that users had created over one billion Meta Avatars. Additionally, the Quest Store had also earned more than $25 million in revenues and doubled its titles.
“More than half of Quest daily actives now spend more than an hour using their device,” he added.
He continued,
“The next milestone is that we’re gearing up to launch our next-generation consumer virtual and mixed reality device later this year. We launched Quest 2 almost three years ago at this point. It was a very big step forward for VR. And I’m really excited to show the world all of the improvements in new technology that we have developed since then at a price point that will be accessible for lots of people”
The Chinese Connection?
China, a key ally in Meta’s battle to raise earnings, helped boost profitability after three consecutive quarters of declining revenues.
In the earnings call, Susan Li, Chief Financial Officer, Meta told attendees that it saw advertisers in China “accelerate” in Q1. Many companies targeted Chinese users and related markets, “which we believe was due in part to dropping shipping costs and easing COVID lockdown for those advertisers,” she said.
China’s easing of its zero-COVID policy allowed Chinese firms to expand their market outreach to global customers, benefiting the US tech giant. This boosted Meta’s sales roughly 3 percent year over year to $28.7 billion in the first quarter (Q1).
Advertisements were key to the company’s operations as Meta struggles to reduce headset costs amid pushback from global regulatory bodies. Following additional European Union restrictions, the company has mulled increasing its reach to Asian markets such as China to boost its revenues.
Regulatory Concerns for Big Tech
Additional concerns included a “volatile macro environment” in 2023 due to a “challenging regulatory environment,” Li said, citing lawmakers in the European Union and the United Kingdom.
The EU has consistently cracked down on data privacy concerns from Meta’s transatlantic data flows over the last few years, leading to a settlement in March last year. Both Washington and Brussels inked a conciliatory deal to mitigate risks from potential violations of the latter’s General Data Protection Regulation (GDPR) Act.
The news also comes amid fierce standoffs with the British government, which passed its Online Safety Bill. The legislation could fine or imprison executives from firms it states have failed to protect online users.
Westminster passed the law amid a major controversy involving a young woman who took her life after exposure to harmful content on Facebook. This triggered a public outcry from lawmakers and family-orientated users, leading to the law’s creation and advocacy.
The news comes just a day after other major US tech giants posted higher-than-expected earnings from their respective Q1 earnings.
Companies such as Alphabet, Microsoft, NVIDIA, Amazon, Apple, and Tesla also reported a rise in earnings following their respective layoffs. The companies reported combined earnings of around $2 trillion USD in market capitalisation for the current year.
Meta lost over $20 billion USD after it rebranded from Facebook to Meta Platforms at its Connect Event in October 2021.
