Facebook parent company Meta announced that it had held on to users and was making progress with a feature aimed at competing with rival TikTok, calming investor concerns with its first-quarter earnings report.
The company's stock climbed nearly 20 percent during after-hours trading, a reprieve to the significant losses it sustained over the past three months. Facebook shocked the market in February with its last earnings report, when it revealed stagnating user growth, sending its stock plummeting. Meta had lost nearly half its market value between early February and the market close on Wednesday.
But the company announced a modest increase in user numbers on Wednesday and posted a profit of $7.5 billion, which beat market expectations. Facebook said it had 1.96 billion daily users in March, compared with 1.93 billion in December.
That user growth and assurances from executives that the short-form video feature Reels is performing well so far seemed to assuage investors.
"There was concern that competition from TikTok would start to erode the base, and that hasn't happened," said Gene Munster, managing partner at venture capital firm Loup Ventures.
Reels, its short-form video feature, is the company's answer to the wildly popular app TikTok, which has boomed during the pandemic and is especially popular with younger users. CEO Mark Zuckerberg said on a call with analysts after the earnings report that Reels now accounts for more than 20 percent of the time users spend on Instagram.
Zuckerberg also acknowledged significant challenges the company is facing, including effects the war in Ukraine has had on the digital advertising industry and a slowdown in e-commerce spending compared with earlier in the pandemic.
That means the company will need to tighten its spending in some cases, he said.
"But with our current business growth levels, we are now planning to slow the pace of some of our investments," Zuckerberg told the analysts.
The slowdown is a response to challenges in the market, CCS Insight analyst Martin Garner said.
"This is most likely a direct response to the lack of investor confidence the company has seen as it has poured money into new ventures, and an attempt to reassure stakeholders that its spending is under control," he said.
The company, which changed its corporate name from Facebook to Meta in October, has been investing heavily in its vision for the "metaverse," a virtual world powered by its virtual and augmented reality hardware.
Developing the metaverse is playing a long game -- a really long game. Zuckerberg said he doesn't expect the company's metaverse devices and services to be big moneymakers until "later this decade."
But the company does plan to debut a web version of its metaverse social platform, Horizon, this year.
Meta is also facing challenges from changes to Apple's operating system that prevent ad-tracking, which impacts part of Facebook's core business. The company said in February that it expected the changes to cost it about $10 billion for 2022.
The company's stock price surged despite reporting revenue of $27.9 billion, an increase of less than 7 percent since last year, representing slower-than-normal growth for the company.
Meta's earnings report comes after fellow social media company Snap and Google parent Alphabet fell short of analyst expectations. YouTube, Google's video streaming site, reported disappointing ad revenue and Snap's revenue growth fell short of targets, as the digital ad industry deals with an increasingly crowded market and pressure from rising inflation.