Facebook owner Meta touts AI as digital ads improve prospects; stocks jump

April 26 (Reuters) – Meta Platforms Inc (META.O) CEO Mark Zuckerberg said on Wednesday that AI was helping the company increase traffic to Facebook and Instagram and earn more ad sales because it predicted quarterly earnings well above analysts’ expectations.

Meta shares jumped 12% after hours trading, adding more than $50 billion to its market value and continuing a tech stock rally that began after Google parent Alphabet Inc (GOOGL.O) and Microsoft Corp (MSFT.O) reported strong results on Tuesday. .

Meta narrowed its cost outlook range for the year, saying spending could be lower than the company’s March forecast, and also beat expectations for first-quarter earnings and revenue, which rose for the first time in nearly a year.

The company, which has been slow to adopt AI-enabled hardware and software systems for its core business, has carried out several costly overhauls to strengthen its core business, including a massive capacity upgrade project. ‘IA.

“At this point, we are no longer behind in building our AI infrastructure,” Zuckerberg said on a conference call. “And on the contrary, we now have the ability to do leading work in this space at scale.”

AI recommendations increased time spent on Instagram by 24% in the January-March quarter, Meta said.

“I think like Alphabet, a lot of Meta’s investment in AI has gone to the advertiser side,” said James Cordwell, analyst at Atlantic Equities.

“So as a consumer, we may not be seeing the fruits of their labor in this area, but it certainly looks like they are able to use more advanced algorithms to maintain some level of ad targeting.”

Meta has also launched an aggressive cost-cutting campaign, with plans to cut 21,000 jobs and flatten its middle management structure as it works towards Zuckerberg’s goal of making 2023 “the year of efficiency.” “.

The results indicated that the austerity drive “got off to a stronger than expected start for Meta,” Insider Intelligence senior analyst Debra Aho Williamson said.

“In this economic environment – and after the disaster of 2022 – 3% year-over-year revenue growth is an achievement. Meta’s strong second-quarter revenue guidance is another indicator that the business may be starting to come out of the woods.”

The social media giant faced a killer 2022 as a pandemic-era e-commerce boom erupted, while rivals like TikTok snapped up young users and updates from Privacy Policy Apple Inc (AAPL.O) have cut off access to user data around which it has built its advertising business.

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AI retooling spending boosted the company’s capital spending, which was slightly below expectations at $7.1 billion for the quarter. Analysts had forecast $7.2 billion in capital spending in the quarter, based on the company’s full-year forecast of $30 billion to $33 billion, which it kept unchanged.

The company has left open the possibility of increasing its capital expenditure by developing products for generative AI, an emerging technology that can create writing, art and other human-like content.

“Zuckerberg is well aware that his spending habits are being watched very closely, and any renewed effort to shift the budget to untested areas will not be well received,” said Sophie Lund-Yates, chief equity analyst at Hargreaves. Lansdown.

“That said, it’s very difficult to work your way to the top, leaving Meta to walk a very fine line between keeping the lights on and making the future bright enough to excite investors.”

Meta said it continues to expect operating losses for its metaverse-oriented Reality Labs unit to increase in 2023. The company had invested billions of dollars in the unit, which lost $13.7 billion. dollars last year.

Zuckerberg said he remains committed to investments.

“A narrative has developed that we’re sort of moving away from focusing on the metaverse vision. I just want to say up front: that’s not accurate,” he said. “We’ve been focusing on both AI and the metaverse for years, and we’ll continue to focus on both.”

Meta cut its annual spending forecast to $86 billion to $90 billion from the $86 billion to $92 billion it predicted in March, when it announced its second round of layoffs.

The company said its quarterly price per ad was down 17% from a year earlier, while it expects current-quarter revenue of between $29.5 billion and $32 billion. billion, versus analyst estimates of $29.53 billion, according to Refinitiv data.

Net income 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 per share.

First-quarter revenue rose 3% to $28.65 billion, beating an average estimate of $27.66 billion.

Reporting by Akash Sriram in Bangalore; Editing by Arun Koyyur

Our standards: The Thomson Reuters Trust Principles.

Akash Sriram

Thomson Reuters

Akash reports on technology companies in the United States, electric vehicle companies and the space industry. His stories usually appear in the Autos & Transportation and Technology sections. He holds a postgraduate degree in Conflict, Development and Security from the University of Leeds. Akash’s interests include music, football (soccer) and Formula 1.

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