It couldn’t get much worse for Meta Platforms Inc. than when it lost $230 billion in market value in February after reporting its first-ever drop in daily users, and today the Facebook parent actually managed to show surprising improvement, sending its stock soaring in late trading.

Meta, which rebranded itself in October in the hope of leading a virtual reality-fueled metaverse, reported today that its first-quarter profit fell 21%, to $7.5 billion, or $2.72 a share, on a 7% increase in revenue, to $27.9 billion.

Analysts had expected a profit of $7.1 billion, or $2.56 a share, on revenue of $28.3 billion. So although revenue fell a bit short, to the slowest growth rate in a decade, earnings exceeded forecasts. 

One key metric, daily active users on Facebook — which helped tank the stock three months ago — showed some recovery and likely drove the stock higher in late trading. It rose 4% from a year ago, to 1.96 billion people, a tad better than analysts’ consensus of 1.95 billion people. Another key measure, “family monthly active people” across Facebook, Messenger, Instagram and WhatsApp, rose 6%, to 3.64 billion, just under a Wall Street forecast of 3.7 billion.

Meanwhile, Meta’s bet on the future, its former Oculus virtual reality headsets it now calls Meta Quest, continues to lose a lot of money, as the Reality Labs unit lost $2.96 billion, up from $1.83 billion a year ago, on revenue of $695 million, up from $534 million a year ago.

Meta said it expects second-quarter revenue to be in the range of $28 billion to $30 billion, short of analysts’ forecast of $30.5 billion. It cited “a continuation of the trends impacting revenue growth in the first quarter, including softness in the back half of the first quarter that coincided with the war in Ukraine.”

Meta’s shares jumped more than 18% in extended trading after the report. They had fallen about 3%, to $174.95 a share, in the regular session as investors likely looked at yesterday’s earnings shortfall at Alphabet, which also gets most of its revenue from advertising. Meta shares fallen a stunning 44% since the Feb. 2 earnings report.

Investors may also have been cheered somewhat today by a more positive outlook on costs. It cut expected total projected expenses for this year to a range of $87 billion to $92 billion, from a previous outlook of $90 billion to $95 billion.

“We’re now planning to slow the pace of some of our investments,” Chief Executive Mark Zuckerberg (pictured) said on a conference call with analysts. He said that in 2022, at least, the continuing growth in operating profit from the Family of Apps unit that makes up the vast majority of its revenue and all its profit won’t make up for the high costs of Reality Labs work.

“This is most likely a direct response to the lack of investor confidence the company has seen as it has poured money into new ventures, and an attempt to reassure stakeholders that its spending is under control,” said CCS Insight Chief Operating Officer Martin Garner.

Even as it spends billions of dollars to pursue the metaverse opportunity, Meta faces unprecedented upheaval in its core advertising business. Zuckerberg warned last quarter that Apple Inc.’s new privacy rules, which keep Meta and other companies from collecting user data employed in targeted advertising, could cost the company $10 billion in lost sales this year.

Another challenge is that Facebook’s short-form video service Reels isn’t making money yet, and Chief Financial Officer David Wehner has warned that it’s not likely to make as much as the News Feed and Stories. Not least, Facebook and its sister service Instagram are seeing intense competition from the likes of TikTok.

“The questions we face are not going to be solved overnight,” Zuckerberg said on the call, but he added that he’s “confident we can navigate them.”

Into the metaverse

Zuckerberg said the next focus for its metaverse push is growing the community for its social platform, called Horizon, for which a web version will be released later this year. He added that he expects Met to be “meaningfully better on monetization” than rivals.

Later this year, he said, a higher-end headset code-named Project Cambria will be released, eventually with an aim to replacing laptop and work collaboration setups.

“This is going to be a longer cycle” to get to profitability, Zuckerberg said. He mentioned 2030 as a rough date for when it would constitute a full-fledged platform on a par with Facebook.

“The problem for Meta is that these declines coincide with heavy investing in hardware, software and platforms for the metaverse,” said Garner, who noted that Meta’s attempt to reassure investors — apparently with success so far — also matters inside the company.

“This is also super-important for staff retention,” he said. “This has an added importance given the heavy hiring spree the firm has been on as it seeks to build its metaverse platform, and the fact that many staff will be incentivized with stock-based compensation.”

Photo: Robert Hof/SiliconANGLE