Shares of Facebook’s parent company Meta Platforms Inc. took a hit in extended trading today after it easily beat Wall Street’s expectations comfortably only to spook investors with ambiguousness over its prospects in the next financial year.

The company delivered net income of $11.6 billion in the third quarter, up 164% from just $4.4 billion in profit a year earlier. Earnings before certain costs such as stock compensation came to $4.39 per share, crushing analysts’ consensus estimate of $3.63 per share. Meanwhile, revenue climbed 23% from a year earlier, to $34.2 billion, nicely ahead of Wall Street’s target of $33.6 billion.

Meta officials pointed to a rebound in advertising, more efficient monetization of Instagram and Reels, and artificial intelligence-powered ad targeting and measurement as the main factors in its strong performance. The results come hot on the heels of a similar performance from Meta’s advertising rival Alphabet Inc., the parent of Google LLC.

On a call with analysts, Meta Chief Executive Mark Zuckerberg (pictured) stated that the company is much leaner, shipping faster and “advancing the state of the art” in all of its long-term initiatives. “And while investing heavily for the future, we also just recorded our highest operating margin in two years, so I’m looking forward to carrying this product momentum and operating discipline forward,” he added.

One reason for Meta’s ad success appears to be that it has come furthest along in terms of adjusting to the iOS privacy changes introduced by Apple Inc. in 2021, which make it more difficult for application developers to target users. Meta has since made big investments in AI tools to help advertisers target consumers in other ways. “Meta has made progress in monetizing its Reels short-form video format, potentially mitigating weaknesses in other advertising segments, including Threads,” said Vijayanta Gupta, chief growth Officer at Emplifi Inc.

Meta Chief Financial Officer Susan Li said on the call that online commerce was the main contributor to ad revenue growth, followed by consumer packaged goods and gaming.

Although analysts welcomed Meta’s renewed growth, their optimism quickly turned to dismay when Li revealed that the company is now seeing softness in the ad market since the outbreak of war in the Middle East. “While we don’t have material direct revenue exposure to Israel and the Middle East, we have observed softer ad spend in the beginning of the fourth quarter, correlating with the start of the conflict, which is captured in our Q4 revenue outlook,” she stated.

Snap Inc. yesterday offered a similar outlook tied to Middle East uncertainty and its stock fell 5% today. In addition, Li declined to offer a forecast for fiscal 2024 revenue, and when pressed to at least offer top-line estimates, she fell back on her earlier comment about the “volatile macro environment” the company has already seen since the start of the current quarter.

“I think that will obviously have a big impact on the advertising market next year, and it’s something we’ll be keeping a very close eye on, but ultimately, we’re very subject to volatility in the macro landscape,” she said.

Meta’s stock, which initially gained around 4% after posting its results, plunged rapidly, falling more than 3%. That added to a 4% drop during the regular trading session prior to the report.

Despite the after-hours stock drop, Meta delivered a very strong quarter fueled by a rebound in advertising, said Holger Mueller of Constellation Research Inc.

“With it’s revenue up by almost 25% and its headcount down by 25% too, it translates to roughly 2.5 times the income,” the analyst said. “The CFO declining to provide guidance for the next full year is a concern, of course, so we will have to see how investors will react to this in the medium and long run. On the other hand, Meta keeps investing in its business, with CAPEX of close to $7 billion a good sign for the future.”

For the fourth quarter of fiscal 2023, Meta sees revenue of between $36.5 billion to $40 billion, the midpoint of which is just below Wall Street’s forecast of $38.8 billion.

On the other hand, Meta did at least cut its full-year outlook for total expenses, saying it now expects between $87 billion and $89 billion, down from a prior forecast of $88 billion to $91 billion.

The company also revealed that its experimental Reality Labs division, which is focused on virtual reality, augmented reality and the metaverse, is likely to increase its operating losses this year over fiscal 2022. During the quarter, the unit racked up a loss of $3.74 billion. All told, it has lost more than $25 billion since the start of fiscal 2022. That’s despite launching new products such as the Quest 3 headset.

Despite today’s stock drop, Meta’s stock continues to be one of the market’s hottest properties, up 149% in the year to date, compared with a gain of just 9% for the S&P 500 Index.

Photo: Robert Hof/SiliconANGLE