Following the news that Meta Platforms has exceeded expectations with strong second quarter (Q2) 2023 results; 

Amelia Connor-Afflick, Senior Thematic Intelligence Analyst at GlobalData, a leading data and analytics company, offers her view:

“Meta has relieved shareholders by scaling back on its metaverse plans and refocusing on AI. Shifting the metaverse to more of a long-term ambition will keep attention away from the major losses in its Reality Labs unit. Focusing on AI instead has allowed it to address some of its previous losses in ad revenues as AI tools have significantly improved the monetization of its products. However, as a long-term strategy, Meta needs to prove it can stay competitive in AI development. The only thing separating it from competitors is its claim that it is democratizing AI development by providing open-source access to its tools. This may not be enough to compete with leaders such as OpenAI and Google DeepMind, which have even criticized Meta’s public access approach due to safety concerns, albeit this criticism might be more related to the threat to their own business models.

“A promising move was its shift back to social media, an area Meta knows best. The launch of Threads had 100 million sign-ups in its first week which will have boosted confidence following months of uncertainty around its metaverse plans. However, it leveraged its existing Instagram user base to attract sign-ups and the launch came at an ideal time given the disarray at Twitter. Meta, therefore, needs to prove the app will retain users, attention rates, and be profitable. A critical point will be finding a monetization strategy that is not just ad-focused given the tidal wave of data privacy regulations.

“Q2 growth of its ad revenue, attributed to AI tools, will bring a sigh of relief given the challenges it faced from Apple’s privacy software updates and stricter data regulations. Reels and click-to-WhatsApp ad revenues were particularly strong, arguably showing how Meta is challenging TikTok. Its ad-focused business model however still faces regulatory challenges and while Meta believes the EU-US Data Privacy Framework will alleviate some problems, it needs to adapt to the privacy-led regulatory environment. Shareholders will want to see improved regulatory compliance to alleviate further risks of fines and reputational damage. The company, therefore, needs to show how it can successfully diversify its revenue stream beyond ads.”