Facebook parent Meta soars 16% after Q1 results show user growth recovery, and Mark Zuckerberg reins in metaverse spending

• Meta soared 16% on Thursday after its Q1 results showed a rise in daily active users.
• CEO Mark Zuckerberg said he's slowing the pace of investment in new projects, including the metaverse.

Facebook parent Meta soared as much as 16% in regular trading Thursday after its first-quarter results showed a rise in daily active users, and after CEO Mark Zuckerberg tried to reassure investors about metaverse-related expenses.

The social-media giant reported earnings per share of $2.72, above expectations for $2.56, in its financial update released after the market close Wednesday. Quarterly revenue came in at $27.91 billion, missing analysts' average estimate for $28.20 billion.

It reported that daily active users rose by 3 million from the last quarter to 1.96 billion, beating analyst expectations of 1.95 billion.

CCS Insight analyst Martin Garner noted that growth in user numbers helped spark a stock move, even though Meta's advertising revenue and profitability declined more than the normal first-quarter seasonal drop.

In its last financial update, the company reported a drop in user numbers for the first time, shedding roughly 1 million daily active users between the third and fourth quarters. Its stock fell 22% in the wake of that report.

Garner said user growth remains a challenge for Meta, in view of the combined headwinds on several fronts: Apple's App Tracking Technology, the shift of user behavior to short-form video where monetization is lower, Russia's ban on Facebook and Instagram, the war in Ukraine, macro-economic uncertainty and unfavorable currency movements.

Meta's stock has fallen nearly 50% so far this year, thanks to growing concerns that its advertising business might suffer due to Apple's privacy crackdown, which is seen as putting pressure on its revenue. Apple's privacy update has forced app developers to ask permission from users before being able to track them across other apps and websites, which has hit digital ad businesses.

But for the first time, Meta laid out a rough game plan during its earnings call on how it will attempt to revamp its struggling ad business.

Zuckerberg said Meta would slow its metaverse spend, after the division lost another $2.9 billion in the first quarter. In the final quarter of last year, the division lost $3.3 billion, sparking profitability concerns.

Garner suggested this move was likely made in response to weak investor confidence.

"As a result of the challenges in the market, Meta has decided to slow its rate of spending on newer project areas such as its metaverse vision," the analyst said.

"This is most likely a direct response to the lack of investor confidence the company has seen as it has poured money into new ventures, and an attempt to reassure stakeholders that its spending is under control," he added.

Meta was last up 13.5% at $198.69 a share as of 9:44 a.m. ET on Thursday.

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