Three Key Questions About Meta Platforms (META) Earnings in April 2023

Meta Platforms (NASDAQ: META) reported better-than-expected earnings for Q1 2023 after the market close on Wednesday, April 26, 2023. What happened during the release and earnings call, and what are the questions we’re focusing on?

1. How are Facebook and Instagram revenues trending at META?

   META delivered $28.6B in sales in Q1, driven by the better-than-expected performance of Facebook and Instagram. Ad revenues outperformed for the U.S. and the Rest of the World. For APAC and EMEA, performance was in-line with analyst expectations.

   META guided to $29.5-32B in sales for Q2, which also exceeded the consensus estimate of $29B. Since the release, META has seen upward revisions to the 2023 estimate of $119B to $124B, driven by a 6% upward revision of Facebook’s core revenue. Income from the Family of Apps has also been upwardly revised by 11% from $49.7B to $55.2B.

2. How is META’s efficiency focus impacting the outlook?

   In Q1, META delivered $7.2B in operating profit, driven by a strong $11.2B in the Family of Apps and diluted by a $-4B loss in Reality Labs, which was in line with expectations.

   META’s operating expenses guidance came down to $86-90B for 2023 from its previous $89-95B. META highlighted that restructuring costs for 2023 will be $3-5B, and only $1B has been recognized in Q1, with the bulk of charges going to Family of Apps. Going forward, there may be a higher concentration of both costs and restructuring charges coming from Reality Labs, as the company absorbs the full impact of efficiency efforts. Will the remaining $2-4B in restructuring costs be skewed toward Reality Labs?

   With sales guidance for Q2 ahead of expectations, the previously expected $33B operating profit for 2023 was revised up by analysts post-quarter to $39B, and the margin from 27% to 30%, driven by increased profitability across the business. In 2019, META generated a 34% operating profit margin. Could AI and other efficiency efforts drive margins back to 34% levels by the end of 2024?

3. Where will CapEx as a percentage of sales trend?

   META reiterated their 2023 capital expenditures (CapEx) of $30-33B. In Q1, they had $7B in CapEx, suggesting ~$8B/quarter for the remainder of the year. At the Morgan Stanley TMT conference in early March, META noted that their CapEx/sales ratio would be coming down, and based on Q1’s unchanged CapEx, it further suggests that revenues may exceed expectations.