Why Meta Reported a Strong First Quarter for 2023
Meta’s ad business is back on the upswing, and AI is a big reason. On April 26, Meta reported its first increase in sales in nearly a year because of an improvement in its advertising business. This happened because Meta’s short-form video feature, Reels, is gaining more engagement thanks to Meta’s use of AI to target Reels more carefully to its user base. More engagement means more ad revenue.
What Meta Announced
Meta reported revenue of $28.6 billion, up 3 percent from a year prior and ahead of expectations of nearly $27.7 billion, according to analysts surveyed by FactSet. That snapped a streak of three quarters in which Meta’s revenue had declined from the year prior (The drop was the only time that has occurred since the company went public in 2012.) The 3 percent increase is an improvement from the 4.5% drop in revenue that the company posted in the final quarter of 2022. This is a notable turnaround for a company that spent the better part of 2022 regrouping after Apple’s consumer privacy controls ate into Meta’s ad revenues.
In his formal comments on the quarter, CEO Mark Zuckerberg attributed the growth largely to the popularity of Reels, which is Meta’s answer to TikTok’s influential short-form videos. He said that Reels are growing quickly on both Facebook and Instagram.
“Reels also continue to become more social with people resharing Reels more than 2 billion times every day, doubling over the last six months,” he said. “Reels are also increasing overall app engagement and we believe that we’re gaining share in short-form video too.”
He also said that more than 3 billion people use at least one of Meta’s apps each day.
Zuckerberg attributed the uptake of Reels to the way AI makes more personalized Reels recommendations for Meta users to watch, which, in turn, encourages advertisers to create targeted ads.
Our investment in recommendations and ranking systems has driven a lot of the results that we’re seeing today across our discovery engine, Reels, and ads. Along with surfacing content from friends and family, now more than 20% of content in your Facebook and Instagram feeds are recommended by AI from people, groups, or accounts that you don’t follow. Across all of Instagram, that’s about 40% of the content that you see. Since we launched Reels, AI recommendations have driven a more than 24% increase in time spent on Instagram.
Our AI work is also improving monetization. Reels monetization efficiency is up over 30% on Instagram and over 40% on Facebook quarter over quarter. Daily revenue from Advantage+ Shopping Campaigns is up 7x in the last six months.
Meta Advantage+ Shopping Campaigns, introduced in 2022, are automated shopping campaigns that use machine learning by dynamically serving your ads to audiences most likely to convert while better utilizing your advertising budget. The product eliminates manual ad creation steps and according to Meta, “automates up to 150 creative combinations at once.”
Why the Meta News Matters
This news matters for two reasons:
- Meta continues to wield influence on the digital ad space. Google and Meta will together capture 48.4 percent of all U.S. digital ad revenue in 2023.
- Meta’s growth reflects Big Tech’s aggressive embrace of AI. Google, Microsoft, and Meta each said “AI” 50 times in their most recent earnings calls. According to PwC, the AI market is predicted to contribute $15.7 trillion to the global economy by 2030. Big Tech firms are both developing AI-based products and encouraging advertisers to use them.
Meta’s growth amid a challenging economic climate is also good news for the entire digital advertising industry. It’s a sign that advertisers are willing to continue investing in their brands during economic uncertainty.
What Advertisers Should Do
- Experiment with products such as Meta Advantage+ Shopping Campaigns to understand how AI is influencing the advertising landscape.
- Be open to trying other new Meta ad opportunities depending on how you engage with your customers and prospects. For example, Mark Zuckerberg told investors on the April 26 earnings call that Meta is building out business messaging “as the next pillar of our business.” He noted that last quarter its click-to-message ads reached a $10 billion revenue run-rate. Since then, the number of businesses using our other business messaging service — paid messaging on WhatsApp — has grown by 40 percent quarter-over-quarter.
At True Interactive, we advocate for our clients that invest in Meta and other platforms. We will continue to monitor developments and adapt our ad strategies as needed.