Meta Founder Mark Zuckerberg appears to have reminded himself that when you are a public company, income statements matter — especially to shareholders.
After shocking investors in early February by outlining $90-$95 billion in expense spending this year as the social media giant builds out Zuck’s futuristic metaverse, the company is pulling back on that target amid slowing top line growth.
The new goal, which reflects more of an effort to protect profit margins, is now $87-$92 billion.
“These investments are going to be important for our success and growth over time,” Zuckerberg told nervous Wall Street analysts on a Wednesday evening earnings call. “I continue to believe that we should see them through. But with our current business growth levels, we are now planning to slow the pace of some of our investments. Over the next several years, our goal from a financial perspective is to generate sufficient operating income growth from Family of Apps to fund the growth of investment in Reality Labs, while still growing our overall profitability. Now, unfortunately, that’s not going to happen in 2022 given the revenue headwinds.”
Investors cheered Zuck’s expense mea culpa, with shares spiked 16% in pre-market trading on Thursday.
The pullback on spending comes after a mixed quarter for Meta, one where it rebounded from a terrible fourth quarter but was still not showing the same growth rates as in the past. Here’s how Meta performed in the first quarter compared to Wall Street estimates:
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Revenue: $27.9 billion versus $28.24 billion expected
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Adjusted EPS: $2.72 versus $2.56 expected
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Ad revenue: $27 billion versus $27.48 billion expected
Meta reported that it added users across the board. daily active users increased 4% to 1.96 billion. Last quarter, the company’s main Facebook app lost 1 million daily active users.
“Perhaps the biggest Q1 surprise was the $3 billion decrease in the FY22 total expense guide to $87-92 billion,” Jefferies analyst Brent Thill said in a new note to clients. “We were particularly encouraged to hear that management is focused on ‘growing overall profitability’ while still funding growth in Reality Labs. We believe this commentary is a clear signal that the long-term operating margin may remain higher than previously feared.”
Yahoo Finance’s Dan Howley contributed to this story.
Brian Sozzi, a former Wall Street analyst, is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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