Increased revenue depended on the recovery of the digital advertising market

Shares of Meta Platforms rose after the social media company reported first-quarter revenue that exceeded analysts’ estimates and signaled the beginning of a recovery in the digital advertising market.

The company’s first-quarter sales rose to $28.6 billion – marking a return to growth after three consecutive quarters of decline.

This compares with analysts’ average expectations of $27.7 billion, which led to the company’s stock increasing by more than 12% in after-market trading.

The company said its revenue in the current quarter will rise to $32 billion, compared to an average estimate of $29.5 billion.

Meta, owner of Facebook, Instagram and WhatsApp, is accelerating growth while slashing costs in what CEO Mark Zuckerberg dubs an “efficiency year”.

Slowing ad demand over the past year has forced the social media giant to layoffs and cut spending, sparking scrutiny of the billions of dollars Zuckerberg is investing in virtual reality technology.

Meta layoffs mark the end of an era of technology excellence

Despite cutting costs, Meta is still pouring money into strategic areas such as artificial intelligence and metaverse.

Meta continued to add users to Facebook, Instagram and WhatsApp in the quarter ending in March. In all, more than 3 billion people use at least one of the company’s products every day – a new record.

Metaverse losses

However, the company witnessed some negative developments, including what happened in the “Meta” unit, which focuses on building virtual reality technology in the “Metaverse” project. The unit, called Reality Labs, reported an operating loss of $3.99 billion in the first quarter and generated $339 million in revenue — down 51% from the year-ago period, and less than analysts expected.

Mendeep Singh, an analyst at Bloomberg Intelligence, said Metaverse will turn out to be a “fringe” project this year because the company “will likely double its focus on generative AI and large language models. Not cutting back on investments in Reality Labs may shift to a sticking objection point for investors.

Capital expenditures in the first quarter rose to $7.09 billion, compared to $5.55 billion in the same period last year.

Meta announced net income of $5.7 billion, or $2.20 per share, beating the average analyst estimate of $2.01 per share.

Meta stock has jumped 74% this year to Wednesday’s close, recovering from the worst year in its history when it plunged 64% in 2022.

The share price jumped to $236.20 in after-market trading following the results announcement on Wednesday, after closing in the formal session at $209.40.