The news: Meta reported a strong Q3 with revenues beating expectations and landing just shy of 20% growth. While the gains emphasize its continued leadership in the social media market, lower-than-expected user growth could foreshadow challenges.

By the numbers:

• Revenues were $40.6 billion, up 19% year over year and above expectations of $40.29 billion.
• Family daily active people grew 5% YoY to 3.29 billion, falling below expectations.
• Costs and expenses grew 14% YoY, including wider losses for metaverse segment Reality Labs. Headcount was up 9%, bringing its total to 72,404.

Despite significant revenue gains, Meta shares were down 10% in pre-market trading, a sign that investors are anxious about slow user growth and rising business investments.

The streak of revenue gains overlaps with a nearly two-year long cost-cutting effort that has seen the company lay off tens of thousands of employees. Meta dubbed 2023 its “year of efficiency,” but the effort has spilled over well into 2024; the company went through another round of layoffs earlier this month.

Why this matters: As a leading force in social media and one half of the digital ad duopoly, Meta’s earnings can indicate the health of digital advertising. Its lower-than-expected user growth falls in line with our own forecasting, which shows that time spent with media is declining from 2023 highs.

• Meta will have difficulty increasing time spent on its platforms. Our Global Media Intelligence Report found that time spent with all media will decline this year from 2023 peaks (mobile time spent will remain flat), a stark reminder that there’s only so much room for the metric to grow.
• Still, Meta remains far ahead of other social media competitors. Snap and Reddit posted strong earnings earlier this week, but with Q3 revenues of $1.37 billion and $348.4 million, respectively, a vast gap remains between them and Meta’s position.
• Meta is reportedly working on an AI-powered search tool for Instagram, Facebook, and WhatsApp users to answer queries in-app rather than ceding traffic to Google and Bing, per The Information. That effort could address investor concerns about user growth.

Our take: Meta dominates social media, and its Q3 results show the company isn’t wavering. Smaller rivals are managing to make progress, but Meta’s lead is nearly insurmountable.

• Competition for consumers’ attention is at a peak, and Meta will have to show that it can meaningfully increase revenues in the future even if user growth starts to lag.