Shares of Meta soared 15% last Thursday after reporting sales and earnings numbers that easily exceeded analysts’ estimates, however, Meta’s resurgence has little to do with the metaverse.
Since the start of the year, the stock is up nearly 100%, and since its low point in November, it’s up a whopping 170%.
The Communication Services Select Sector SPDR Fund (XLC), which holds a fifth of its portfolio in the stock, has gained 24%, the Global X Social Media ETF (SOCL), which has 12% of its portfolio in the stock, is up 13% and the Roundhill Ball Metaverse UCITS ETF (METV), which has a 6.7% position in the name, is up 24%.
Meta’s stunning comeback has helped the many ETFs that hold outsized positions in the stock outperform this year.
After three-quarters of negative year-over-year growth, the company’s revenues increased by 2.6% thanks to greater engagement in its apps and improvements in the digital advertising environment.
Meta CEO Mark Zuckerberg mentioned that more than three billion people use at least one of the company’s apps—primarily Facebook, Instagram or WhatsApp.
Reels, the company’s short-form video product within Instagram and Facebook, is “increasing overall app engagement,” Zuckerberg said, noting that he believes Reels is gaining market share in short-form video versus competitors like TikTok.
More app engagement and a healthier ad environment should help revenues accelerate next quarter, according to the company.
For 2Q, Meta guided to revenue growth of around 7%.
Meanwhile, steep cost cuts – including three waves of layoffs – have bolstered Meta’s profitability.
While earnings per share were down year over year in 1Q, by next year the company could be generating record or near-record profits, according to analyst estimates.
It is those factors, along with Meta’s increasing focus on artificial intelligence, that have investors so enthusiastic about Meta stock and the ETFs that hold it.
Zuckerberg mentioned that Meta has two main AI areas of focus. One is the recommendation AI that powers the company’s apps and ads.
The second is generative AI, the type of technology that powers viral applications like ChatGPT and Midjourney.
Zuckerberg said generative AI will power “entirely new classes of products and experiences".
Not giving up
Still, despite Meta’s increasing focus on profitability and artificial intelligence, the company hasn’t abandoned the metaverse. “A narrative has developed that we are somehow moving away from focusing on the metaverse vision, so I just want to say upfront that that's not accurate," Zuckerberg said.
"We have been focusing on both AI and the metaverse for years now, and we will continue to focus on both."
He said AI will help the metaverse reach its full potential.
“Breakthroughs in computer vision were what enabled us to ship the first stand-alone VR device. Mixed reality is built on a stack of AI technologies for understanding the physical world and blending it with digital objects,” Zuckerberg added.
“Being able to procedurally generate worlds will be important for delivering compelling experiences at scale. And our vision for AR glasses involves an AI-centric operating system that we think will be the basis for the next generation of computing.” Yet even as Zuckerberg remained bullish on the metaverse, Meta’s first-quarter earnings report underlined how far away the company is from bringing the metaverse to the masses.
Meta’s “reality labs” segment, which houses its metaverse operations, generated a mere $339m in revenues during Q1, a year-over-year decline of 51% due to lower sales for its Quest 2 virtual reality headsets.
The segment also had an operating loss of $4bn.
Investors were less forgiving of those large losses in 2022, but this year, they seem willing to look past them thanks to a slightly better ad environment and Meta’s intensifying focus on profits and AI.
This article was originally published on ETF.com
