A view of Google's headquarters in Mountain View, California, USA on March 23, 2024.
Teyfan Coskun | Anadolu | Getty Images
Meta, Snap and Google all reported first-quarter results this week, posting revenue growth that exceeded analysts' expectations and a rate not seen in at least the past two years. The company's financials were primarily driven by improvements in its overall advertising business.
Companies entered earnings season in a favorable position, with numbers comparable to historically weak periods. However, investors and analysts were cautious in their expectations given the ongoing challenges posed by political and economic instability in various markets around the world and high consumer prices.
Meta, the first member of the group to report results, on Wednesday showed first-quarter sales rose 27% to $36.5 billion, allaying some concerns. This was the strongest growth rate for Facebook's parent company since 2021.
“When Meta fell into the dark ages two years ago, the company knew what it had to do to get back on track,” Bernstein analysts said in a post-earnings note. Ta. “To their credit, the meta protected the core.”
That dark era was defined by a combination of macroeconomic challenges and Apple's iOS privacy changes, which made it difficult for social media companies to target users with ads. Meta lost two-thirds of its value in 2022 and was forced to make significant headcount cuts.
Your phone displays Facebook, with a meta icon in the background.
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Meta responded by leveraging significant investments in artificial intelligence to restructure its advertising system to deliver value to brands despite the hurdles imposed by Apple. The stock price nearly tripled in 2023.
The company's first-quarter results beat expectations across the board, but CEO Mark Zuckerberg in his post-earnings comments highlighted the many ways Meta is spending money in areas other than advertising, particularly in the Metaverse. Shares fell sharply on Thursday following the narrowing of focus.
“We have historically experienced significant stock price volatility at this stage of our product strategy, where we are investing in new product expansions but have not yet realized profitability,” Zuckerberg said on an earnings call late Wednesday. said.
Bernstein analysts, who recommend the stock to buy, say Meta's ad revenue is driven by strength in online commerce, gaming, entertainment and media, and China-based ad demand “remains strong.” said. Meta has benefited from a surge in spending from Chinese discount retailers such as Temu and Shein.
“Without sounding overly religious, you either believe in Zack or you don't, but we do,” the analysts wrote.
Alphabet followed suit on Thursday, reporting first-quarter ad revenue of $61.66 billion, up 13% year over year, while YouTube's ad revenue rose 21% to $8.09 billion. The company as a whole recorded its first 15% growth since 2022, and its stock soared 10% on Friday, its biggest jump since 2015.
Ruth Porat, Alphabet's finance chief, said on a quarterly call with investors that she was “very pleased” with the momentum in the company's advertising business.
Citi analysts said in a note Friday that the broader advertising environment has “obviously strengthened,” with growth in Google Search and YouTube accelerating.
Analysts maintained their buy recommendation, saying, “Alphabet stock has gradually become more positive since the first quarter results.''
Snap stock soared 28% on Friday after the company announced a 21% increase in sales to $1.19 billion, its strongest growth in two years. In each of Snap's last six quarters, revenue has either grown by single digits or declined.
In a letter to investors, the company said demand for its advertising platforms is accelerating and it is benefiting from an improving operating environment.
Analysts at Deutsche Bank said in a report Friday that Snap has achieved “much-needed” results and its ad stack is back on track. Analysts who rate the stock a buy said investors appear to be “most encouraged by investments in advertising platforms with growing expectations.”
Despite the gains, Snap stock is still down 14% for the year.
Investors will get a clearer picture of the digital advertising market next week when Pinterest releases a report on Tuesday alongside Amazon, which has emerged as an online advertising giant. Reddit will follow suit on May 7, reporting earnings for the first time since the social media company's initial public offering in March.
