2Q23 earnings beat street estimate
- 2Q23 earnings of US$7.8bn (+16% y-o-y) beat street by ~4% on lower than expected tax expenses, while revenue of US$32bn (+11% y-o-y) was inline.
- Growth was driven by the advertising revenue resulting from spending by Chinese advertisers and AI-driven Meta Advantage products.
- 3Q23F revenue guidance is 3.2% higher than street; implies a 4.7% y-o-y growth at the mid-point of the guidance
2Q23 net income of US$7.8bn (+16% y-o-y) was 4% higher than street. META reported net income of US$7.8bn (+16% y-o-y), compared to street’s US$7.5bn, being ~4% higher largely due to lower than expected tax expenses. META’s tax expenses in 2Q23 were US$1.5bn (flat y-o-y) vs street’s US$1.8bn, where the effective tax rate reported by META was 16% vs street’s 19%. According to META, the lower tax rate was due to the higher share price providing a higher tax deduction. The tax rate for FY23F is expected to be the same as 2Q23. META posted a staggering US$3.7bn operating loss in its augmented and virtual reality, or metaverse, division, worse than analyst expectations of US$3.5bn and the loss is expected to continue in FY23F. META reported 2Q23 revenue of US$32bn (+11% q-o-q and +11% y-o-y). The revenue was inline with the street estimates and the upper end of the management guidance of US$32bn. Advertising revenue increased to US$31.5bn (+12% y-o-y) in 2Q23, resulting from the online commerce vertical, and monetization of Reels with ~75% of the advertisers using Reels ads. Strong spending by Chinese advertisers, growing monetization of Reels ads, and META’s AI-driven automated ad products called “Meta Advantage” gaining popularity among the advertisers drove the increase in advertising revenue. Furthermore, Facebook’s daily active users (DAUs) increased to 2.06bn in 2Q23 (+0.5% q-o-q). AI-based products to support advertising have been a key focus of the management having introduced Meta Lattice and AI Sandbox, two models for predicting ad revenue and ad testing. According to management, riding the waves of AI and metaverse are the near-term and long-term goals of META as mentioned also in the past.
3Q23F revenue guidance is 3% higher than the street, implying a 4.7% y-o-y growth at the mid-point. META sees US$32bn-US$34.5bn in revenue for 3Q23F, which implies a 4.7% y-o-y growth in the mid-range, and 3% higher than street’s US$32.2bn. META has revised its total expenses guidance upwards for FY23F from US$86bn-US$90bn to US$88bn-US$91bn due to legal-related expenses incurred in 2Q23. Total expenses include approximately US$4bn of restructuring costs related to facilities consolidation charges and severance and other personnel costs. Capex guidance for FY23F has been revised downwards from US$30bn-US$33bn to US$27bn-US$30bn due to shifts in capex into FY24F resulting from delays in projects and equipment deliveries and cost savings on non-AI servers. META expects the operating loss of the reality labs segment to increase in FY24F resulting from efforts to further expand the ecosystem and the product developments of augmented reality/virtual reality.