Meta Q1 ’23 earnings boosted by Chinese retailers buying ads

Meta can thank Chinese retailers for helping lift the company’s first-quarter sales after three consecutive quarters of revenue declines.

As chief financial officer Susan Li told analysts during the earnings call, the social networking giant “saw acceleration among advertisers in China targeting users and other markets, which we believe was due in part to dropping shipping costs and easing Covid lockdown for those advertisers.”

In other words, Chinese companies spent a lot of money over a three-month period ended in late March on Facebook ads intended for consumers living outside the country. It’s a sign that China’s recent easing of its zero-Covid policy has indirectly benefited Meta, with Chinese companies using Facebook and Instagram’s massive reach around the world to land new customers.

Still, Meta’s sales grew only 3% year over year to $28.65 billion during the first quarter, underscoring that there’s still turbulence in the digital advertising market.

Li said that Meta also saw stronger demand in the quarter as Russia’s war in Ukraine passed its one-year mark as of February. But she wasn’t prepared to say that the rest of year will be smooth sailing.

Meta expects “a volatile macro environment” for the rest of the year and a “challenging regulatory environment” overall, Li said, referring to European Union regulators who continue imposing tough data privacy laws and requirements that affect the company.

But the mere fact that Meta was able to turn the tide on its declining sales after a harsh period was enough to cause investors to rejoice, sending the company’s shares rising nearly 12% in after-hours trading.

Investors were also keen to hear CEO Mark Zuckerberg preach Meta’s “year of efficiency” that will result in some 21,000 employees exiting the company by early summer.

Zuckerberg addressed the company’s recent round of layoffs that affected technical workers last week and reminded analysts that more job cuts will hit business groups in May.

After May, Li said the company “will resume hiring and we would expect head count growth in excess of 1 to 2% in 2024.”

Zuckerberg gave no signs of planning to slow down spending on the metaverse, the highly speculative bet on virtual worlds that engendered the company’s name change from Facebook announced in 2021.

Indeed, the company’s Reality Labs unit, which is building the virtual reality and augmented reality technologies needed for the yet-to-be developed metaverse, logged nearly $4 billion in first-quarter losses off $339 million in sales.

The metaverse still remains a core priority for Meta, Zuckerberg said, even though it’s also working on new artificial intelligence technologies that could aid its advertising and business messaging services.

“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,” Zuckerberg said. “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,” he added.

Watch: Meta beats on revenue, stocks pop nearly 10 percent on revenue beat