Meta reports Q1 earnings after market close today. Revenue was $28.65B vs. $27.67B expected. EPS was $2.2 vs. $2.01 expected. Reality Labs Operating Losses were $3.99B(!!!) vs. $3.8B expected. Headcount at the end of Q1 was 77,114 vs. 77,805 a year ago, 37,773 in 2019, 48,268 in 2020 and 60,654 in 2021. They still have a long way to go to shrink their headcount back to a more reasonable level.
Overall, it was a good quarter. Meta’s revenue actually increased 3% (and 6% on a constant currency basis) YoY. Compared to Google’s Q1 ad revenue decline, it is interesting that they were able to grow their top line. It appears that the increase is coming mostly from ad impression growth where ad impressions delivered across Family of Apps increased by 26% year-over-year and the average price per ad decreased by 17% year-over-year. I suppose they also made improvements around the Apple privacy change to deliver more ROI for the advertisers.
As for my favorite topic of Metaverse, Zuck said they are still investing heavily into the Metaverse. I believe his conviction as the reality labs lost another $3.99B in Q1. I actually had a conversation with some of my NTUEE classmates about AR. They told me the manufacturing technology is not quite there yet and it could take at least four years to get to a point that the glasses can be mass produced economically with MicroLED as the current OLED has some limitations. There is also a possibility that they will never get there because of physical constraints and whoever figures it all out might be worth a Nobel Prize. I am simply parroting what they told me as I am not a semiconductor/hardware person. But I do worry that Meta is going to burn another $60B ($15B *4) or ~$100B total to find out if they can make this work. The James Webb Space Telescope only cost $10B to launch and OpenAI only spent less than $2B to launch GPT-4 and ChatGPT. It’s unclear if Meta’s excessive spending on Metaverse will lead to big outcomes but it’s very clear that investors are stuck to pay for this expensive experiment.