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    Facebook sees users grow again while metaverse bets gain traction

    • Meta Platforms’ ad revenue grew 6% year-on-year to $27 billion in the first quarter, according to an earnings statement. Total revenue was up 7% YoY to $27.9 billion.
    • Daily active users (DAU) on the core Facebook app were up 4%, or by 82 million, to 1.96 billion. That marks a turnaround from the prior period, when DAUs declined for the first time in company history. Shares jumped on the news, despite Meta missing Wall Street’s revenue targets and offering a patchy outlook for the second quarter.
    • Meta is contending with a number of headwinds that will continue to dog growth, including Apple’s App Tracking Transparency (ATT) framework. The technology giant is narrowing the number of investment areas it is focused on in response, prioritizing bets on short-term video, improving ad infrastructure and the metaverse.

    Meta’s flagship app didn’t continue to shrink on a user basis in Q1, which appeared to be a positive enough development for the markets. The company’s broader ad business, however, is still undergoing a rocky transition as it contends with ongoing challenges from ATT and volatile macroeconomic factors, like the war in Ukraine. Russia has blocked the company’s services and Meta, in turn, ceased accepting ads from Russian advertisers globally earlier this year.

    Looking ahead to Q2, Meta’s projections weren’t exactly rosy. Total revenue is expected to land in the $28 billion to $30 billion range. The lower end of that forecast would mean Facebook recording its first year-on-year revenue drop ever, as noted in CNBC.

    Discussing the Q1 results with analysts, executives suggested that there aren’t many short-term solutions to Meta’s advertising problems. The scope of how leadership plans to tackle these challenges does seem to be narrowing.

    Addressing Meta’s disappointing fourth-quarter report, CEO Mark Zuckerberg outlined seven areas of investment to prioritize. For the Q1 call, he called out three: Reels, a TikTok lookalike; Meta’s ad infrastructure, including doing more with less user data and greater applications of artificial intelligence; and the metaverse, particularly through the Horizon Worlds offering. Less energy seemed to be put toward e-commerce, which has experienced a slowdown after booming earlier in the pandemic. E-commerce performance on Facebook has also been impacted by ATT since it was implemented last year.

    On the Reels front, the feature is attracting eyeballs. Instagram users now spend 20% of their time with the short-form video format, and it’s gaining traction on the big blue app as well. Video, in general, commands 50% of the time people spend on Facebook, according to Zuckerberg.

    But monetization is very much in development for Reels, and executives compared the progress to that of Stories, the disappearing image format that brands eventually came to favor on Instagram. Chief Operating Officer Sheryl Sandberg said Reels would be a “multiyear journey like Stories.”

    “In the near term this is a drag on revenue because Reels monetization is less than feed or stories, but I expect that will improve over time,” Zuckerberg said.

    Meta is ramping up its Reels investments as TikTok continues to see its star rise with consumers and advertisers. Insider Intelligence expects TikTok’s ad revenue will triple this year to $11.64 billion.

    Meta’s next priority with the metaverse is to grow a bigger community. The company aims to launch a web version of Horizon Worlds later in 2022 that will make the service more accessible and not require a special headset.

    Brands have started experimenting more with the platform that tries to blend together aspects of the real and digital worlds. Wendy’s in March ran a “Wendyverse” campaign where visitors could explore a virtual restaurant in Horizon Worlds. It reached 52 million users, per Sandberg, and improved Wendy’s brand and message awareness across several metrics, though those weren’t broken out.

    Laying the groundwork for the metaverse remains a costly endeavor. Reality Labs, the Meta division that oversees its augmented and virtual reality bets, posted an operating loss of $3 billion in Q1.

    Meta’s forecast for how much ATT will affect revenue in 2022 remains unchanged. The projection, which is “not a precise point estimate,” per executives, is a $10 billion hit.

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