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Facebook Is Growing Its Daily Users Again

What’s happening

Facebook’s parent company Meta reported first-quarter earnings. Its daily active users grew in the first three months of this year.

Why it matters

Meta’s stock plunged 26% in February when it reported a decline in daily Facebook users for the first time in the social network’s history. The jump in daily users in the first quarter signals that Facebook’s growth hasn’t peaked.

What’s next

The company said it’s expecting several challenges such as Apple’s privacy changes, the war in Ukraine and regulation to impact its business in the second quarter.

The number of people using Facebook every day is growing again.

In the first quarter, which ended in March, the number of daily users at the giant social network rose to 1.96 billion from 1.93 billion the previous quarter, the company said Wednesday.

The rise was higher than a Wall Street estimate of 1.95 billion.  The return to user growth should help Facebook, which is part of parent Meta, address concerns that it has peaked. In February, the social network said the number of daily users dropped for the first time in the company’s history, sending its stock plunging more than 26% at one point. 

In after-hours trading, Meta shares rose more than 19% to £208.65. The increase in daily users suggests Facebook, a major driver of Meta’s ad business, may still have room to grow. The broader company also owns photo and video app Instagram, messaging app WhatsApp and other services.

Combined, daily users of Meta services jumped 6% year over year to 2.87 billion. Facebook reported 2.94 billion monthly active users, missing estimates of 2.96 billion.  The results come as the land shifts under the social media world.

Earlier this week, Twitter, a main Facebook rival for user attention, struck a £44 billion deal to be purchased by Elon Musk, the mercurial CEO of Tesla and SpaceX. Musk, the world’s richest person, has promised to cut back on content moderation at Twitter, a move that might lure some users and alienate others. Both Facebook and Twitter have been criticized for their content moderation policies. 

Meta CEO Mark Zuckerberg outlined challenges the social media giant is facing, including Apple’s privacy changes, regulation and the war in Ukraine. Russia, for example, blocked Facebook and Instagram and the social network stopped accepting ads from Russian advertisers globally.  “The questions we face are not going to be resolved overnight, but we’ve also faced a number of these challenges before, so I’m confident that we can navigate this period while continuing to invest in our future,” Zuckerberg said in a call with analysts.

Meta has been working on ways for its advertisers to target their ads better with less data after Apple’s privacy changes. Meta rebranded six months ago to focus on the metaverse, virtual spaces in which people can work, play and socialize. Earlier this week, the company said it will open its first physical retail store in May to showcase the VR headsets, smart glasses and video chat devices that will help people experience the metaverse.

Losses at Reality Labs, Meta’s metaverse business line, widened to £2.96 billion from £1.83 billion in the same quarter a year earlier. Zuckerberg said that he doesn’t think the company is going to make a lot of money from this business until later this decade, possibly 2030. Consumer products like Meta’s Oculus headset haven’t become mainstream yet, so Meta still relies on Facebook and its other businesses to generate money to invest in its vision of the metaverse.

Recently, it’s been focusing more heavily on video, including on Instagram, an app popular among teens. Instagram has a short-form video feature called Reels that Zuckerberg said makes up 20% of people’s time on the photo and video service. Meta doesn’t make as much money, though, from ads in Reels compared to its older products such as Feed and Stories where photos and videos vanish in 24 hours.

The company plans to show more ads in Reels but also has to make sure they don’t annoy users at the same time.  Meta CFO David Wehner said in a call with analysts the company expected tepid revenue growth in the second quarter because of Russia’s invasion of Ukraine. The company also expects Facebook monthly active users to be flat or down in the second quarter, he said.

The company expects total revenue in the second quarter to be between £28 billion and £30 billion.

In the first quarter, Meta said it raked in £27.9 billion in revenue, below analyst expectations of £28.2 billion.

The company earned £2.72 per share, above estimates of £2.51 per share. 

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