April 26 (Reuters) – Meta Platforms Inc ( META.O ) CEO Mark Zuckerberg said on Wednesday that AI is helping the company boost traffic to Facebook and Instagram and generate more revenue from ad sales, as it forecast quarterly revenue that beat analyst expectations.
Meta shares rose 12% in after-hours trading, adding $50 billion to its market value and continuing a rally in tech stocks that began after Google parent Alphabet Inc ( GOOGL.O ) and Microsoft Corp ( MSFT.O ) posted strong results on Tuesday. .
Meta lowered its cost outlook range, saying costs would be lower than the company forecast in March, and beat expectations for first-quarter profit and revenue, which rose for the first time in nearly a year.
The company, which has been slow to adopt AI-friendly hardware and software systems for its core business, has made several costly changes to improve its core business, including a major project to improve its AI capabilities.
“At this point, we’re not behind in building our AI infrastructure,” Zuckerberg said in a conference call. “Instead, we now have the ability to do leading work in this space.”
Meta reported that AI recommendations increased time spent on Instagram by 24% in the January-March quarter.
“Like Alphabet, a lot of Meta’s AI investments have gone to advertisers,” said James Cardwell, an analyst at Atlantic Equities.
“So we as a consumer may not see the fruits of their labor in that area, but it certainly seems like they can use more advanced methods to maintain a certain level of ad targeting.”
Meta has also launched an aggressive cost-cutting drive, with plans to eliminate 21,000 jobs and flatten its middle management structure as it works towards Zuckerberg’s goal of making 2023 the “Year of Performance.”
The austerity drive is “off to a stronger-than-expected start for the Meta,” said Debra Aho Williamson, principal analyst at Insider Intelligence.
“In this economic environment – post-disaster 3% revenue growth to 2022 is a feat. Meta’s strong guidance for Q2 revenue is another indicator that the company is starting to come out of the woods.”
A pandemic-era e-commerce boom saw the social media giant in 2022 while rivals like TikTok captured younger users and Apple Inc’s ( AAPL.O ) privacy updates cut access to the user data that built its advertising business.
Spending on the AI reboot boosted the company’s capital expenditures, which were expected to be $7.1 billion in the quarter. Analysts had forecast capital expenditures of $7.2 billion in the quarter, up from the company’s annual forecast of $30 billion to $33 billion, which was unchanged.
The company has opened up the possibility of increased capital spending as it develops products for generative AI, an emerging technology that can produce human-like writing, art and other content.
“Zuckerberg is well aware that his spending habits are being watched very closely, and any renewed attempt to shift the budget into untested areas will not go down well,” said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.
“That said, it’s very difficult to monetize your way to the top, walking a very fine line between keeping the meta lights on and making the future bright enough to excite investors.”
Meta said it continues to expect operating losses at its metaverse-oriented Reality Labs unit to increase in 2023. The company is investing billions of dollars in the unit, which lost $13.7 billion last year.
Zuckerberg said he was committed to investments.
“A narrative has developed that we’re somehow moving away from focusing on the metaverse vision. And I want to be clear: that’s not accurate,” he said. “We have focused on both AI and the metaverse for years and will continue to focus on both.”
Meta has cut its annual costs to between $86 billion and $90 billion, down from $86 billion to $92 billion in March when it announced its second round of layoffs.
The company said its quarterly cost per ad fell 17% from a year ago, while it expects current-quarter revenue of $29.5 billion to $32 billion, compared with analysts’ estimates of $29.53 billion, according to Refinitiv data.
Net profit for the first three months of the year fell to $2.20 from $2.72 a year earlier, but beat expectations of $2.03 a share.
Revenue for the first quarter rose 3% to $28.65 billion, compared with an average of $27.66 billion.
Akash Sriram reports in Bangalore; Editing by Arun Koiyur
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