Everything you need to know from Meta’s Q1 Earnings
The recent Q1 2022 earnings from Meta were not nearly as dramatic as the previous quarter and fears of further decline have proven unwarranted.
So how should advertisers respond to the latest update?
Daily active users increased by 31 million in Q1. This growth occurred in spite of Meta pulling out of the Russian market, where an estimated 71 million Facebook users went offline overnight.
In the light of this growth, investor panic after Meta’s Q4 results now seems hasty. The shift from the rapid growth experienced at the start of the pandemic to a slight dip in users in Q4 2021 was a shock to markets. However, reinstated growth in Q1 bucked concerns of a QoQ continual decline.
The picture in Q1 2022 looks reflective of the pre-pandemic snapshot, with a modest increase in users and revenue YoY and a shift in focus towards the long-term.
Meta finds solutions to last year’s problems
Meta’s change in fortune is in part due to recovery from two negative trends in 2021.
Firstly, as we pass one year since the introduction of iOS 14, the negative impact of signal loss due to privacy changes from Apple, as well as the EU cookie directive, has started to slow down as Meta implements solutions to solve tracking issues.
One way Meta is resolving this problem is by investing in AI and machine learning to improve recommendations and support its ad infrastructure.
Meta also changed its focus by evolving its ad systems “to do more with less data”. This means improving its ad solutions and working closely with advertisers to integrate with its conversions API, and Meta recently released its Conversions API Gateway.
Secondly, Meta reported that a dramatic increase in ecommerce during the first year of the pandemic led to outsized revenue growth for the company in 2020. This slowed in 2021, but the company has managed to lock in much of its growth in users and has returned to a more modest growth in DAU similar to the pre-pandemic period.
In light of this, Meta confirmed that engagement on both Facebook and Instagram remains above pre-pandemic levels.
TikTok puts pressure on Meta… and Alphabet
Alphabet also released its Q1 2022 results – and it faced similar challenges, with YouTube, in particular, missing its quarterly projections for ad revenue.
In response to these trends, Alphabet is doubling down on YouTube Shorts, its answer to TikTok, where it has recently started testing ads. Alphabet reported that Shorts now reaches 30 billion views per day, four times the amount this time last year.
Meanwhile, Meta reported that users now spend more than 20% of their time on Reels – its own TikTok contender – with an increase in Facebook adoption too. Despite this, Meta does not seem to have worked out a way to fully monetise Reels, which will be a key focus in the future.
With Meta and Alphabet on the defensive, it is evident that TikTok is drawing users from both platforms. Parent company ByteDance is less transparent with its view data in comparison, but analysts at Data.ai estimate that there are over 1.5 billion monthly active users on the platform – up 40% since Q4 2021.
Despite all three short-form video offerings increasing in popularity, none of the three companies has succeeded in monetising the formats yet. The opportunity for the company that solves this first is clearly significant. Meta reported that it faced similar challenges when monetising Stories, where it eventually succeeded without negatively impacting the platform user experience.
We have found that this shift to Reels has contributed to rising CPMs. With users moving from the Feed to Reels (which has less inventory for ads), we expect costs to remain high in the next quarter.
With all three companies endeavouring to monetise this format, we expect one platform will eventually succeed – and it’s likely that when this happens the rest will follow. Brands should be prepared as this will significantly change the advertising landscape.