Meta Platforms (META +0.67%), the parent company of social media platforms Facebook, Messenger, WhatsApp, and Instagram, surprised Wall Street on Wednesday afternoon when it said it returned to top-line growth in its first quarter. This marks the company's first quarter of revenue growth since the first quarter of 2022.
The better-than-expected sales figure from Meta shows that the company is making progress on key initiatives to reaccelerate its business. But it's also representative of an easy year-ago revenue comparison. Nevertheless, it's encouraging to see the company pull this off even as macroeconomic uncertainty persists.
While it's encouraging to see Meta returning to growth, investors may want to exercise some caution. After all, Meta may be growing but this growth is slow. The more important question is whether the tech company can continue to accelerate its top-line growth. While Meta's first-quarter results were a step in the right direction, it's still unclear if the company can return to the double-digit growth it was consistently serving up investors in past years.
Here's an overview of Meta's first-quarter results and a look at management's expectations for revenue growth.
NASDAQ: META
Key Data Points
Meta's return to growth
After Meta wrapped up 2021 with 37% year-over-year revenue growth and 20% growth for the fourth quarter of that year, growth decelerated dramatically in the first quarter of 2022 as changes in Apple's ad tracking, ad measurement, and user privacy on the iPhone-maker's mobile operating system negatively impacted Meta's business. An uncertain macroeconomic environment didn't help, either. Since then, growth has been negative. Until now.
Meta's 2023 first-quarter revenue increased 3% year over year to $28.7 billion, easily surpassing analysts' estimates for revenue of $27.7 billion. In addition, the results were ahead of management's guidance for revenue to be between $26 billion and $28.5 billion. Earnings per share fell from $2.72 in the year-ago period to $2.20, but management said this figure would have been $0.44 higher if it excluded charges related to layoffs, restructuring, and other related special items.
The company also notably tapped into its massive cash hoard to repurchase $9.2 billion worth of its own stock -- a move that suggests management may believe Meta shares were undervalued during the quarter.
Looking ahead
Importantly, even the low end of management's guidance calls for more growth in Q2. Meta's outlook for second-quarter revenue to be between $29.5 billion and $32 billion implies a growth rate between 1.5% and 10%. This growth would come on top of an easy year-ago comparison when revenue increased just 1% year over year.
While Meta CEO Mark Zuckerberg noted in the company's first-quarter earnings call that it's seeing "good momentum" in its products and businesses, it said this is largely due to the lapping of easier year-ago comparisons.
"Looking forward to Q2 and the back half of the year," explained Meta Chief Financial Officer Susan Li, "it's certainly an easier compare there as there are tailwinds to year-over-year growth coming from lapping a weaker demand period and then moving into the first full quarter in Q2 without Russia revenue in terms of the comparison relative to Q2 2022." Li also said she expects foreign-exchange headwinds to be less challenging in Q2.
But Li hinted that the company's guidance is likely conservative, noting that Meta's outlook reflects expectations for "a volatile macro environment." She added, "[I]t's hard to have perfect visibility on how those dynamics will impact the broader economy and specifically the advertising markets for Q2 and for the rest of the year."
All this is saying that Meta's outlook for continued growth in Q2 is encouraging, particularly in light of the challenging macroeconomic environment and management's apparent conservatism behind this view.
Can Meta's top-line growth persist throughout the rest of the year? Considering the company's easy year-ago comparisons and management's expectations for more growth in Q2, top-line growth for the full year of 2023 is looking more likely than it was before the company's first-quarter results were out. As long as economic conditions don't worsen, the trough in Meta's revenue growth rates could be in the rearview mirror.
