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Israel-Hamas war threatens to dent Meta’s ad profits turnaround as it eyes big investment in AI

The Facebook logo is seen on a cell phone on Oct. 14, 2022, in Boston.
The Facebook logo is seen on a cell phone on Oct. 14, 2022, in Boston. Copyright Michael Dwyer/Copyright 2022 The AP.
Copyright Michael Dwyer/Copyright 2022 The AP.
By Pascale Davies with AP
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Meta is enjoying a profit turnaround. But the Israel-Hamas war could dampen that as it experiments in augmented and virtual reality.

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Facebook parent company Meta is undergoing a turnaround after it reported better-than-expected results for the third quarter, which comes after laying off thousands of employees last year.

On Wednesday, Mark Zuckerberg’s company said revenue increased by 23 per cent, which is the fastest rate of growth since 2021.

Meta also earned $11.58 billion (almost €11 billion), in the July-September quarter, which is up from $4.4 billion (€4.1 billion).

It comes after advertising revenues plummeted last year for three straight quarters due to macroeconomic woes, leading to massive staff cuts.

But Meta is seeing faster growth in its core digital ads business, despite the company on Tuesday being sued by 41 states plus the District of Columbia for harming young people's mental health.

Meta said the number of active users on Facebook was 3.05 billion as of September 30, an increase of 3 per cent from a year earlier.

An attendee tries the Meta Quest 3 in a demonstration room at the Connect developer conference Wednesday, Sept. 27, 2023, in Menlo Park, Calif.
An attendee tries the Meta Quest 3 in a demonstration room at the Connect developer conference Wednesday, Sept. 27, 2023, in Menlo Park, Calif.Godofredo A. Vasquez/Copyright 2023 The AP.

But Meta’s finance chief Susan Li told analysts on the announcement call the unrest in the Middle East due to the Israel-Hamas war has seen ad spending soften.

“We have observed softer ads in the beginning of the fourth quarter, correlating with the start of the conflict, which is captured in our Q4 revenue outlook,” Li said. “It’s hard for us to attribute demand softness directly to any specific geopolitical event”.

New gadgets and AI investment

Meta’s investment in the metaverse has not paid off. The company’s Reality Labs division, which focuses on augmented and virtual reality technologies, saw losses of $3.74 billion (€3.54 billion) for the quarter.

Meta said it expects Reality Labs’ operating losses “to increase meaningfully” year-over-year due to “ongoing product development efforts in augmented reality/virtual reality and our investments to further scale our ecosystem”.

Last year, Meta released its Quest 3 headset and Ray-Ban Meta Smart Glasses. Despite the new gadgets, the company has lost almost $25 billion (€23 billion) since the start of last year.

But Zuckerberg said: “I’m proud of the work our teams have done to advance AI and mixed reality with the launch of Quest 3, Ray-Ban Meta Smart Glasses and our AI studio”.

As for where Meta will now invest, the Meta boss said “AI will be our biggest investment area in 2024, both in engineering and computer resources”.

Meta said it expects revenue of $36.5 billion to $40 billion (€34.5 billion to €38 billion) for the next quarter.

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