How Meta Turned Around Its Business and Doubled Its Profits in Just One Quarter

Meta, the company formerly known as Facebook, has been on a roll lately. The social media giant reported impressive earnings for the third quarter of 2023, beating analysts’ expectations and showing strong growth in revenue, profits, and user base. 

Meta’s shares jumped 4% in after-hours trading on Wednesday, following the announcement of its results.

But how did Meta manage to achieve such a remarkable turnaround in its business, after facing a series of challenges and setbacks in 2022? What are the key factors behind its success, and what are the potential risks and opportunities ahead? In this article, we’ll explore these questions and more, as we take a closer look at Meta’s “year of efficiency” strategy and its impact on the company’s performance and future.

Meta’s “Year of Efficiency” Strategy

Meta’s CEO Mark Zuckerberg announced his plans for a “year of efficiency” in February 2023, following the company’s third consecutive quarterly revenue decline. The company faced a number of difficulties in 2022, including the impact of Apple’s app privacy changes on its ad targeting capabilities, lower digital ad spending amid the COVID-19 pandemic and economic uncertainty, slowing user growth and engagement due to increased competition from rivals like TikTok, and regulatory scrutiny and public backlash over its role in spreading misinformation and harming democracy.

Zuckerberg said that the company needed to focus on improving its core products and services while reducing its costs and increasing its profitability.

He outlined four main pillars of his strategy

• streamlining the company’s organizational structure and cutting down on unnecessary expenses. Meta said it would lay off about 10% of its workforce, or about 10,000 employees, as part of its restructuring plan.

The company also said it would reduce its capital expenditures by 20%, or about $4 billion, in 2023. Meta said it has “substantially completed” the layoffs portion of its cost-cutting plan by the end of September.

• Investing in artificial intelligence (AI) and machine learning (ML) to enhance its ad targeting technology and optimize its return on investment (ROI) for advertisers.

Meta said it would leverage its vast data and computing resources to create more personalized and relevant ads for its users, while also improving its measurement and attribution tools to help advertisers track the effectiveness of their campaigns.

• Monetizing new features and platforms, especially Reels, the short-form video service that competes with TikTok.

Meta said it would increase its ad inventory and formats on Reels, as well as introduce new ways for creators to earn money from their content, such as tipping, subscriptions, and branded content deals. Meta also said it would explore new revenue streams from other products, such as Marketplace, WhatsApp, Messenger, Oculus, and Portal.

• Expanding into new markets and segments, especially in emerging regions like India, Africa, and Latin America. 

Meta said it would invest in building more affordable and accessible internet infrastructure and devices for these regions, as well as creating more localized and culturally relevant content and services for these audiences. Meta also said it would pursue new opportunities in areas like e-commerce, gaming, education, health care, and social good.

Meta’s Impressive Results

Meta’s “year of efficiency” strategy seems to have paid off handsomely so far. The company reported stellar results for the third quarter of 2023, showing significant improvements across all key metrics:

• Revenue, Meta’s revenue grew by 23% year-over-year to $34.1 billion in Q3 2023, beating analysts’ estimates of $33.5 billion. This was the highest revenue growth rate since Q4 2019. The revenue growth was driven by strong performance in both advertising and non-advertising segments. Advertising revenue increased by 22% year-over-year to $32.8 billion, accounting for 96% of total revenue. Non-advertising revenue increased by 36% year-over-year to $1.3 billion, mainly due to higher sales of Oculus VR headsets.
• Profits, Meta’s net income more than doubled year-over-year to $11.6 billion in Q3 2023, compared to $5.7 billion in Q3 2022. This was the highest net income ever recorded by the company. The profit growth was driven by higher revenue and lower expenses. Meta’s total costs and expenses decreased by 9% year-over-year to $18.8 billion in Q3 2023, mainly due to lower headcount and capital expenditures. Meta’s operating margin increased from 37% in Q3 2022 to 52% in Q3 2023, the highest since Q4 2018.
• Users, Meta’s user base also grew steadily in Q3 2023, despite facing stiff competition from other platforms. Meta’s family of apps, which includes Facebook, Instagram, WhatsApp, and Messenger, reached 3.58 billion monthly active people (MAP) in Q3 2023, up 12% year-over-year. This was the highest user growth rate since Q1 2018. Meta’s core Facebook platform reached 2.91 billion monthly active users (MAU) in Q3 2023, up 6% year-over-year. This was the highest user growth rate since Q4 2019.

Meta’s Future Outlook

Meta’s outlook for the future is optimistic, but not without challenges. The company said it expects its revenue growth to accelerate in Q4 2023, compared to Q3 2023, due to seasonal factors and continued recovery in the global economy.

• However, the company also warned that it faces several headwinds that could negatively affect its growth and profitability in the coming quarters and years.

These include

• Regulatory and legal risks, Meta is facing increasing scrutiny and pressure from regulators and lawmakers around the world over its market dominance, data privacy practices, content moderation policies, and social impact. The company is involved in several antitrust investigations and lawsuits in the US, Europe, and other regions, which could result in fines, penalties, or forced divestitures of some of its businesses. The company is also facing backlash from users, advertisers, and civil society groups over its role in enabling misinformation, hate speech, violence, and human rights abuses on its platforms. The company recently faced a series of damaging revelations from a former employee turned whistleblower, Frances Haugen, who leaked thousands of internal documents that exposed the company’s failures and misdeeds.
• Competitive and innovation risks, Meta is facing fierce competition from other tech giants and emerging players in the social media space. The company is losing ground to TikTok, which has surpassed Meta in terms of global downloads and engagement. The company is also struggling to keep up with the fast-changing consumer preferences and trends in the digital landscape. The company is investing heavily in developing new products and features, such as Reels, Stories, Live Audio Rooms, Bulletin, Horizon Workrooms, and Ray-Ban Stories. However, these initiatives have not yet proven to be successful or profitable for the company. The company is also betting big on its vision of building the “metaverse”, a virtual reality platform that would enable users to interact with each other and digital content in immersive ways. However, this vision is still far from being realized and faces many technical, ethical, and social challenges.
• Operational and execution risks, Meta is facing operational and execution challenges as it tries to implement its “year of efficiency” strategy. The company has undergone a major organizational restructuring and rebranding in the past year, which could create confusion and disruption among its employees, customers, and partners. The company has also cut down on its workforce and capital expenditures, which could affect its ability to attract and retain talent, innovate and scale its products and services, and maintain its quality and security standards. The company has also faced several outages and glitches on its platforms in recent months, which have affected its user experience and reputation.

Let's wrap it up

Meta has shown remarkable resilience and adaptability in the face of multiple challenges and crises. 

The company has delivered impressive results for the third quarter of 2023, thanks to its “year of efficiency” strategy that focused on streamlining its operations, improving its ad technology, monetizing new features and platforms, and expanding into new markets and segments. The company has also demonstrated strong growth in revenue, profits, and user base across all its products and services.

However, Meta is not out of the woods yet. The company still faces significant risks and uncertainties that could hamper its future growth and profitability. These include regulatory and legal risks, competitive and innovation risks, and operational and execution risks. The company will need to address these challenges effectively and proactively if it wants to sustain its momentum and achieve its long-term goals.

Meta has proven that it can turn around its business and double its profits in just one quarter. But can it maintain its leadership position and fulfill its vision of building the metaverse? Only time will tell.

Thank you for reading.

 

Best,

Nexa-Hub