Meta earnings call: Slowing investment; focus on Reels and AI role (updated)
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Facebook parent Meta Platforms' stock (NASDAQ:FB) had jumped 17.5% in postmarket trading Wednesday before the company launched a conference call (still ongoing) to describe its Q1 earnings - a mixed print where its profits beat consensus while revenue growth fell short, and users grew enough to avoid the worst predictions.
CEO Mark Zuckerberg kicked off the call with a key change, noting the company would be slowing some investment to reflect what execs are seeing in the company's growth.
"Based on the strong revenue growth that we saw in 2021, we kicked off a number of multi-year projects to accelerate some of our longer term investments, especially in our AI infrastructure, Business Platform and Reality Labs," he said.
"These investments are gonna be important for our success and growth over time, so I continue to believe that we should see them through, but with our current business growth levels, we are now planning to slow the pace of some of our investments," he said.
Turning to the company's two business units, he said that in Family of Apps, "I'm confident that we can return to better revenue growth rates over time, including sustained high operating margin. In Reality Labs, we're making large investments to deliver the next platform."
In the coming years, he says the financial goal is to generate enough operating income growth from Family of Apps that it can fund Reality Labs investment while growing overall profitability; "Now, unfortunately that's not going to happen in 2022."
There are three main investment priorities, he says: Meta's short-form video product Reels (a rival to TikTok (BDNCE)); ads, and the metaverse. Reels already makes up more than 20% of time spent on Instagram, he says, and video overall makes up 50% of the time that people spend on Facebook (where Reels is also growing quickly, he says).
On the subject of highly-sought details on Reels monetization, Chief Operating Officer Sheryl Sandberg had some meaty case examples. While it still monetizes at a lower rate vs. Feed and Stories, advertisers using it are seeing promising results: Prose is a direct-to-consumer haircare brand, and "they A/B tested adding a Reels app placement to their usual campaign; they saw a 23% lower cost per purchase, 52% higher unique audience reach, and three times higher video completion." The company is hearing this from other advertisers across the board, she says.
Turning to regulation in Europe, the continent's upcoming Digital Markets Act raises hurdles: "We expect DMA to have significant challenges for our industry," Sandberg says. The rules aren't final yet but are "largely in range of what we were expecting ... we are well set up to keep working closely with regulators, and doing things in our technology like privacy enhancing technologies, to do more with less data."
"But we expect this to continue to be a challenging time not just for us but across our whole industry," she says.
The subject of Meta's continuing struggles with Apple privacy changes came up, and there are two concerns with iOS - targeting and measurement - and "we're working through mitigations on both," Sandberg says. On targeting, "we're improving our systems as we test and learn and supporting advertisers with best practices. And we're working on automating tools that will help advertisers target target better and we have to do it with less data, we have to do more with more aggregated and anonymous data."
On measurement, "we've been able to close a good part of the underreporting gap and share that with advertisers. But the rest of the gap will take us longer to close," Sandberg says, noting it's a special challenge for small businesses.
Updated: The call has ended, and at 6:09 p.m., Meta Platforms stock is up 17.6% postmarket.