AI Monetization Not Impressive! Meta's Earnings Beat Expectations, But Stock Is Falling

Under low expectations, Google's AI-driven performance boost lifted its stock price, while Meta, which has risen 67% this year, needs a more significant shock. Hence, despite Meta's third-quarter revenue and earnings exceeding expectations, the future guidance was unremarkable, leading to over a 3% drop in its stock in after-hours trading.

Here are the results:

Revenue: $40.59 billion, up 19% y/y, higher than the expected $40.29 billion

EPS: $6.03, up 37% y/y, higher than the expected $5.25

Meta's family of apps DAU reached 3.29 billion, up 5% year-over-year, slightly below the expected 3.31 billion.

The company expects fourth-quarter revenue to be between $45 billion and $48 billion, representing a 15% year-over-year growth at the midpoint, indicating a further slowdown but roughly in line with the market expectation of $46.3 billion.

AI as the Main Contributor to Advertising Business, Commit to Further Investments 

With massive traffic pool and large models driving personalized recommendations, the core ads revenue reached $39.8 billion this time, up 18% year-over-year. The company noted that the average price per ad and ad impressions rose by 11% and 7%, respectively, showing effective AI monetization. Zuckerberg emphasized that over a million customers are using Meta's generative AI advertising tools.

Regionally, Meta's revenue in the Asia-Pacific area grew by 15% in the third quarter, the slowest-growing region. CFO Susan Li stated that this growth was lower than the 28% in the previous quarter due to a decline in demand from Chinese advertisers, possibly influenced by reduced ad spending from cross-border e-commerce companies like Temu and Shein.

Despite this, the boost from AI to performance is real. Having tasted success, the company will continue to invest heavily in AI infrastructure. Meta has raised this year's capital expenditure to between $38 billion and $40 billion, up from the previous $37 billion to $40 billion. Additionally, the company expects capital expenditures to continue to grow significantly in 2025 due to accelerated infrastructure spending.

"Our AI investments continue to require serious infrastructure, and I expect to continue investing significantly there, too," Meta CEO Mark Zuckerberg said Wednesday on a call with analysts. The company's spending on AI is helping to improve its core online advertising business, constantly improving and building more data centers to provide the technology infrastructure needed for its AI strategy.

Notably, Zuckerberg's heavily invested Metaverse division, Reality Labs, continues to incur stable losses. This division mainly sells VR headsets and develops related software and hardware. It posted $270 million in revenue in the third quarter, up 29% year-over-year but below the expected $310.4 million, with an operating loss of $4.4 billion, meaning a loss of $16 for every dollar of revenue. Since 2020, Meta's Reality Labs has accumulated operating losses exceeding $58 billion.

If it were not for the AI-driven boost to advertising performance, shareholders' dissatisfaction with Zuckerberg's Metaverse vision would likely be loud and clear. Currently, the focus on Meta remains on the continued monetization of AI, which includes the commercial deployment of its Llama large language models for both consumer and enterprise markets. These efforts aim to enhance existing business efficiency and achieve new growth. However, as previously mentioned, Meta's status as one of the biggest beneficiaries of AI this year has already resulted in significant stock price gains. Without a highly impressive earnings report, even continued optimism may not be enough to sway the market.