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Meta Q2 Earnings: Social Media Foundation Stable, Strong Returns On AI Investments

AInvestThursday, Aug 1, 2024 9:45 am ET
2min read

Meta released its second-quarter results, which exceeded market expectations across the board. Moreover, Meta managed to control the pace of capital expenditure growth, alleviating concerns about excessive spending in the market. Following the financial report, the company's stock price surged by 8%.

In this quarter, Meta spent $8.47 billion, lower than the market's expected $9.5 billion. The full-year 2024 capital expenditure is projected to range from $37 billion to $40 billion (previously estimated at $35 billion to $40 billion), with the lower limit raised by $2 billion, although the upper limit remains unchanged. This adjustment helped ease worries about extravagant spending. However, Meta's management indicated that capital expenditures for 2025 could see a substantial increase.

Earnings Call Takeaways:

Social Media Foundation:

The social networking user base remains stable, with healthy growth in advertising business empowered by AI, leading to significant improvements in conversion rates.

Meta's suite of social applications maintains a solid user base, with 3.2 billion people using at least one platform daily. The company has increased advertising in categories with lower ad frequencies and optimized display timings to enhance conversion rates and boost advertising revenue growth without increasing or even reducing ad placements.

The introduction of a full-screen video player for Facebook, integrating various video viewing experiences, has contributed to growth in short video content and increased ad exposure. On Instagram, engagement with Reels continues to rise as we refine our recommendation systems.

There is a visible trend of sustained healthy growth in global advertising demand, with expectations of continued growth in Q3 advertising client spending, albeit at a slower year-on-year pace due in part to strong growth last year driven by Chinese advertising clients in Q3 and the high base effect from Reels' rapid growth.

The Advantage+ shopping ad solution launched by the company has shown remarkable results. U.S. advertisers have seen a 22% increase in return on investment after adopting Advantage+ shopping ads. In the past month alone, over 1 million advertisers have used at least one Advantage+ advertising solution.

Progress in AI and capital expenditure: 

Core AI investments have already shown strong returns. Opportunities for generative AI (AIGC) lie ahead. Meta remains committed to open-sourcing large models.

Regarding capital expenditures, the company's AI investments are broadly categorized into core artificial intelligence and generative artificial intelligence. Core AI investments prioritize return on investment, which has been evident in enhanced user engagement and advertising conversion rates reflected in revenue growth. These investments are meaningful.

For generative artificial intelligence, AIGC is not expected to drive substantial revenue growth this year, but over time, AIGC products can open new growth opportunities.

The open-source Llama 3.1 model is highly competitive and leads in certain aspects compared to other top proprietary models.

Metaverse and other highlights: 

Performance of Ray-Ban smart glasses exceeded expectations, with demand outstripping supply. Significant increase in employee numbers expected by the end of 2024.

The performance of Meta's Ray-Ban smart glasses has surpassed expectations, partly credited to AI. Currently, the product is facing high demand with efforts underway to ramp up shipments to meet market needs.

Following previous recruitment shortages, efforts are underway to fill positions starting this year, with a significant increase in employee numbers expected by the end of 2024 compared to the end of 2023.

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