Decrypt’s Art, Fashion, and Entertainment Hub.
Mark Zuckerberg’s Meta is expected to report tomorrow that profits declined as Facebook and Instagram’s parent company increasingly looks to AI as a source of potential growth. The news comes amid a metaverse pivot that has struggled to gain traction.
Analysts who follow the company are expecting it to report a profit of $5.2 billion for its first quarter, a roughly 30% drop compared to the $7.5 billion it recorded during the same period a year ago. The company’s revenue is also expected to be lower, but only by 1%, dropping $27.7 billion from $27.9 billion.
The temperature check from one of the biggest names in social media comes alongside earnings for other titans of tech, like Google parent Alphabet, Microsoft, and Amazon.
After the company lost almost $14 billion on its Metaverse Division last year, Zuckerberg dubbed 2023 Facebook’s “Year of Efficiency.” Now the company is tightening its belt amid a challenging business environment in the U.S.
The pledge followed a drop in advertising—a source of revenue that’s been essential for the firm—sliding from $115 billion in 2021 to $114 billion last year. In a recent report, analysts at Argus Research noted the company faces pressure from the rise of TikTok, yet they said a potential ban in the U.S. or political heat could offer Meta some breathing room.
“We believe that challenges at TikTok [...] could benefit Meta, which continues to add users to its platform,” the report stated. “TikTok faces a potential ban in the U.S., or at least the sustained hostility of the U.S. government.”
And although the company faces headwinds, it’s continued to grow its already massive base of engaged users. For Facebook alone, the company reported 2.96 billion monthly active users in its final quarter of last year, a 2% bump from the previous year.
The company’s image has been largely centered around its metaverse push since the company rebranded in 2021. But Meta’s Reality Labs segment contributes only a small amount to revenue compared to its so-called Family of Apps: Facebook, Instagram, Messenger, WhatsApp, and other services.
Meta is no different. After the company trimmed its workforce by 11,000 employees last November, Zuckerberg announced the firm would pink slip an additional 10,000 employees last month. In his announcement, the Meta CEO also said his firm was “canceling lower priority projects” and flattening out its management structure.
“In retrospect, I underestimated the indirect costs of lower priority projects,” Zuckerberg said.
Meanwhile, the company has released a series of tools related to AI, following its Big Tech counterparts after the explosive success of OpenAI’s ChatGPT. Meta’s offerings have included “Segment Anything,” an AI image identification tool, and advertising tools that leverage generative AI.
Developing AI technology and integrating it into Meta’s products has become the company’s biggest area of investment, Zuckerberg said when he disclosed the firm's most recent wave of layoffs. Yet, he signaled that doesn’t mean the company is pulling the plug on its metaverse ambitions any time soon.
“Our leading work building the metaverse and shaping the next generation of computing platforms also remains central to defining the future of social connection,” he said.