Meta said it widened its revenue guidance for the fourth quarter after observing “softer ads” and “volatility” in demand in the past few weeks, correlating with the start of the Israel-Hamas war.
“While we don’t have material direct revenue exposure to Israel and the Middle East, we have observed softer ad spend in the beginning of the fourth quarter,” Meta’s chief financial officer Susan Li told investors during the company’s earnings release on Wednesday evening.
“It's hard for us to attribute demand softness directly to any specific geopolitical event. Historically, we have seen broader demand softness follow other regional conflicts in the past, such as in the Ukraine war,” she added.
Li said Meta’s guidance Q4 revenue of between $36.5 to $40 billion is a wide range “in part” to “capture that uncertainty.”
“Ultimately, we're very subject to volatility in the macro landscape,” she said.
The outlook is nevertheless strong, representing a 13% to 24% jump on the same period the prior year. Li noted that demand from commerce and gaming advertisers, its largest spenders in the third quarter, along with consumer-packaged goods, continued to be strong in October.
Commerce and gaming advertisers in China who buy ads on Meta’s platforms to reach customers worldwide was specifically noted as a key growth driver for Meta in the third quarter — Chinese advertisers were also called out in Q2.
Google parent Alphabet similarly noted retail as a key driver of its ad performance in the third quarter, with ad revenue growing 9.5% to $59.6 billion.
While Google is a bigger business, its growth rate was outpaced by Meta in the third quarter, which surpassed expectations with revenue increasing 23% to $34.1 billion—its fastest growth rate since 2021.
Meta’s profit in the quarter more than doubled to $11.6 billion compared to the prior year.
Investors were particularly pleased by Meta’s 7% drop in total costs and expenses in the quarter, proof of CEO Mark Zuckerberg’s “year of efficiency” plan that has resulted in thousands of layoffs. Meta had 66,185 employees as of September 30, a 24% year-over-year decrease from a year earlier.
Though losses continue to rack up at Meta’s Reality Labs division, responsible for its AR and VR technology, which posted $3.74 billion in operating losses for the quarter.
Revenue from its immersive technologies also decreased by 26% to $210 million which it said was primarily due to lower sales of its Quest headsets.
Meta released its new Quest 3 mixed reality headset earlier this month after its debut at Meta Connect in September alongside the company’s Ray-Ban Meta Smart Glasses.
The company said it expects Reality Labs’ operating losses “to increase meaningfully year-over-year” in 2024.
Losses from Reality Labs were more than offset by revenue generated by Meta’s core apps, which drew in $33.6 billion in ad revenue and $293 million in ‘other’ revenue—which it said was primarily generated from its WhatsApp Business Platform.
Ad revenue growth was strongest in the ‘rest of world’ region at 36%, followed by Europe at 35%, Asia-Pacific at 19% and North America at 17%.
Meta is facing a significant challenge in Europe following the introduction of the European Commission’s Digital Services Act (DSA) and Digital Markets Act (DMA). Meta has been designated as one of six “gatekeepers” under the DMA, requiring it to alter aspects of how it operates by March 2024 or face serious fines — including how it serves ads to users.
One solution it has proposed to regulators is charging a subscription fee of between $14 to $17 per month solely for European users who want to access Instagram and Facebook but have opted out of targeted ads.
Li said on Wednesday the company intended to evolve its legal basis for processing personal data for ads to a consent model in the EU, the EEA and Switzerland but added “we don't have any further details to share on the exact implementation.”
She said the company was “encouraged by the early signs” of its paid-for Meta Verified products for creators and businesses.
Meta was also hit with a blitz of lawsuits from Washington, D.C. and 41 states in the U.S. on Tuesday over the ways its social media platforms may have harmed children’s mental health.
Meta’s stock fell more than 3% in after-hours trading on Wednesday.