+ Advertising trends continued to accelerate. META saw a huge acceleration in digital advertising revenue (3Q23: 24% YoY vs 2Q23: 12% YoY). Much of this acceleration was contributed by e-commerce companies, particularly from outbound Chinese advertisers trying to reach other markets like the US and Brazil. We expect these trends to continue improving given a typically strong 4Q holiday season, and a general recovery in the digital advertising industry.
+ Reels monetisation no longer a headwind. Reels – which has been a near-term headwind given its lower levels of monetisation, reached an inflection point. Monetisation levels for Reels finally reached net neutral to overall revenue as a result of ranking improvements and increasing ad supply. We think that this is significant given the incremental time spent on short-form video formats like Reels vs Feed/Stories. Moving forward, we expect Reels to be a modest tailwind to revenue growth as it continues to improve its monetisation levels.
+ Earnings grew ~2.5x YoY; highest margins in >2 years. PATMI increased 164% YoY, with net margins of 34%, its highest since 2Q21. Earnings also beat consensus estimates by 21% on higher revenue growth, and a leaner cost structure after significant cost-cutting measures over the last 12 months. Headcount was down -24% YoY.
– Uncertain growth outlook for 4Q23e, increasing expenses into FY24e. META issued a fairly wide revenue guidance for 4Q23e, with a range of US$36.5bn-40bn (implying a 13%-24% YoY growth) due to concerns over increasing volatility led by geopolitical events in the middle east. It also guided to a reacceleration in total expenses growth for FY24e (10% YoY), citing increasing AI-related investments and payroll expenses.