Dive Brief:

• Meta Platforms saw revenue up 11% year-over-year in the second quarter, a sign that the tech firm’s turnaround plan is producing positive results, according to an earnings statement. 
• Strong demand from online commerce, entertainment and media and consumer packaged goods verticals drove the advertising resurgence. Total ad impressions across Meta’s apps, which include Facebook, Instagram and WhatsApp, ticked up 34% YoY while the average price-per-ad decreased 16%, reflecting more activity centered around less well-monetized features and regions. 
• One of those features is the TikTok lookalike Reels, which is now used by more than three-fourths of Meta’s advertisers, CFO Susan Li said. Meta also received praise for early progress on the generative AI front and with Threads, a competitor to Elon Musk’s X (f.k.a. Twitter).  

Dive Insight:

Meta’s robust Q2 offers another sign that the digital ad market has started to recover following a particularly anemic post-pandemic period that resulted in revenue declines, a situation that started to turn around for the company in Q1. The social media giant forecast third-quarter revenue in the $32 billion to $34.5 billion range, above analyst estimates. Google’s YouTube, which had also been in a slump, similarly bounced back in Q2 with revenue up 4% YoY. 

A sunny report from Meta follows several tough quarters last year that were hampered by weak advertiser demand and technological challenges stemming from Apple policies that make running ad campaigns more difficult. Meta has gone through several rounds of layoffs due to these headwinds, with CEO Mark Zuckerberg promising a “year of efficiency” through a leaner, more focused organization. That approach appears to be producing results. 

A small team was able to quickly develop and launch Threads earlier this summer, for instance. The X rival drew a slew of early sign-ups as consumers and advertisers sought an alternative to Elon Musk’s embattled platform, though engagement slid in the weeks following the buzzy debut. Meta is in the midst of adding more features to the service to improve retention and the user experience.   

“Only after that will we work on monetization,” said Zuckerberg on a call discussing the results with analysts. Several brands have already run marketing efforts on Threads, including Chipotle, which used the microblogging app for a recent promotion around National Avocado Day.  

Bets on artificial intelligence (AI) were another area that received a heavy amount of investor attention. Like many digital platforms, Meta has used AI for years, but the hype around generative AI software like ChatGPT has set off an arms race in the sector. Meta has built out its AI-powered Advantage+ offerings for marketers, and, in May, unveiled an AI Sandbox tool for quickly creating and editing campaign assets, like images or copy.  

“Almost all our advertisers are using at least one of our AI-driven products,” said Zuckerberg on the earnings call.

The executive imagined three key scenarios where AI could further enhance monetization: through virtual agents that help connect users with brands and content creators; through more features like AI Sandbox; and by helping Meta improve internal efficiency and productivity. 

“In terms of how quickly some of these new products scale, that's one of the big unknowns for the business and one of the things that we're debating heavily,” Zuckerberg said.

AI investments tend to be steep due to the computing power and talent required to implement and manage the technology. Tech firms are faced with weighing the costs of spending more on experimental AI in a fragile market.

On the cost front, Meta was also pressured about its vision for the metaverse. Zuckerberg has stated that Meta’s two chief priorities are AI in the short term and the metaverse over the long run, but the strategy around the latter continues to lack focus. Reality Labs, the unit in charge of Meta’s virtual reality (VR) products, saw revenue down 39% in Q2 on soft Quest 2 sales while costs rose 23% to $4 billion. Zuckerberg still believes VR adoption and the interest in shared virtual social experiences will increase down the line, but seemed to acknowledge that scenario might not be coming together as quickly as he would have hoped. 

“I'd say the signals that we're getting from the market are it's certainly not getting adopted a lot faster than we expected, so that's sort of the somewhat sobering signal,” Zuckerberg said.