Meta Q1 FY23 Results: When It All Matters (TSOH Investment Research Service)

Some invesmtent commentary on Meta Platforms Inc META Q1 FY23 results:

There are two key questions for Meta's core business (the Family Of Apps, or FOA, segment): the sustainability of the FOA user base and Meta’s ability to effectively monetize engagement. On the first point, Meta crossed a significant milestone in Q1 FY23: more than three billion people around the world now use at least one of Meta’s services on a daily basis (de-duplicated). The growth and sustainability of the FOA user base, most notably at Facebook (now at >2 billion DAU’s), has been a frequent topic of concern in the investment community over the past five-plus years; the reported results continue to suggest that these fears are misguided. 

Continued daily active people (DAP) growth, along with tailwinds from internal investments behind AI recommended content and new formats like Reels, is driving higher engagement; as CEO Mark Zuckerberg noted on the call, time spent on Instagram has increased by more than 20% since the launch of Reels (as a reminder, management noted on the Q3 FY22 call that aggregate time spent on Instagram and Facebook was increasing YoY in the U.S. and globally).

Growing engagement is having a material impact on FOA advertising volumes: in Q1 FY23, the number of ad impressions grew by 26% YoY, the highest quarterly growth rate for this metric since back in FY20 (the early days of the pandemic). The corresponding decrease in price per ad in the face of rising supply (the number of ad impressions) is a headwind to short-term revenue growth, but I think that’s a good problem for Meta to have. Effectively monetizing these new ad formats remains a work in progress - a problem that the company has navigated through previously - but the accelerating growth in ad impressions is clear evidence that Meta is seeing incremental user engagement from Reels. (As noted on the call, FOA saw significant sequential Reels monetization efficiency improvements on both Facebook and Instagram in Q1 FY23.)

Here's the link for my complete analysis on META's Q1 FY23 results:

https://thescienceofhitting.com/p/meta-when-it-all-matters

Disclosure: TSOH / Alex Morris owns shares of META