Meta Platforms Inc, the parent company of Facebook and Instagram, announced on Wednesday that it is using artificial intelligence (AI) to drive traffic to the two social media platforms and increase ad sales revenue. The news sent Meta shares soaring by 12% in after-hours trading, adding more than $50 billion to its market value. The announcement came after Google parent Alphabet Inc. and Microsoft Corp. both posted strong results on Tuesday, leading to a rally in tech shares.
Meta has been slow to adopt AI-friendly hardware and software systems for its core business, but it has carried out several expensive overhauls to bolster its AI capacity. The company has now invested heavily in AI to enhance the advertiser side of the business, using advanced algorithms for ad targeting. In the first quarter of 2023, AI recommendations on Instagram led to a 24% increase in time spent on the platform, according to Meta.
In addition to investing in AI, Meta has launched an aggressive cost-cutting drive, which includes plans to eliminate 21,000 jobs and flatten its middle-management structure. The company is working towards CEO Mark Zuckerberg’s goal of making 2023 the “year of efficiency”. The results of Meta’s cost-cutting measures were “off to a stronger than expected start for Meta,” said Debra Aho Williamson, principal analyst at Insider Intelligence.
Meta faced a difficult 2022 as the pandemic-era e-commerce boom fizzled out, and competitors like TikTok captured younger users. Furthermore, Apple Inc.’s privacy updates restricted access to the user data on which Meta built its ads business. However, the first-quarter results indicated that Meta’s austerity drive was paying off, and the company was starting to emerge from the woods.
Despite investing billions of dollars into its metaverse-oriented Reality Labs unit, which lost $13.7 billion in 2022, Meta said that it still expects operating losses to increase in 2023. However, Zuckerberg remains committed to the investments, stating that the company is focusing on both AI and the metaverse.
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Meta has narrowed its annual expenses forecast to between $86 billion and $90 billion, down from the $86 billion to $92 billion it had predicted in March. Meta’s quarterly price per ad decreased 17% from a year earlier, while it expects current-quarter revenue between $29.5 billion and $32 billion. Net profit for the first three months of the year fell to $2.20 per share 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, beating an average estimate of $27.66 billion.
Zuckerberg said on a conference call that Meta was “no longer behind in building out our AI infrastructure,” and the company now had the capacity to do leading work in this space at scale. Although it is walking a fine line between keeping the lights on and making the future bright enough to excite investors, Meta is optimistic about the future, with strong guidance for Q2 revenue.
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