Mark Zuckerberg, CEO of Meta Platforms Inc., during an interview on “The Circuit with Emily Chang” at Meta’s headquarters in Menlo Park, California, US, on Thursday, July 18, 2024.
Jason Henry | Bloomberg | Getty Images
For investors who are skeptical of Meta massive spending on artificial intelligence and whether it will pay off soon, CEO Mark Zuckerberg urges them to look to the present.
After the company’s better-than-expected second-quarter earnings report on Wednesday, Zuckerberg and CFO Susan Li broke down all the ways artificial intelligence has helped the company grow faster than the competition in the digital advertising market, the core business of Meta.
“The ways that it’s improving recommendations and helping people find better content, as well as making ad experiences more efficient, I think there’s a lot of upside,” Zuckerberg said on the earnings call. “These are already products that are at scale. The AI work we’re doing will improve that.”
Meta reported a 22% year-over-year increase in revenue to $39.07 billion, with 98% of its sales coming from advertising, mainly on Facebook and Instagram. Its growth rate was twice that of Google’s advertising business, which saw sales rise 11% to $64.6 billion. Alphabet it said in its earnings report last week.
In the meantime, Pinterest and Spotifywhich are both significantly smaller than Meta, reported revenue growth of 21% and 20%, respectively, in their latest reports.
As in previous quarters, Li said Meta’s advertising business benefited from the online commerce, gaming and media and entertainment sectors, and advertising growth continued to be stronger in the Asia-Pacific region. He said the company’s “improved ad performance” helped boost overall ad prices despite slowing growth in that region.
Zuckerberg pointed to artificial intelligence as the foundation behind Meta’s revamped online advertising platform, which was destroyed after apple introduced an iOS privacy update in 2021 that made it harder for social media companies to target users across the internet.
“They’ve rebuilt their ad tech stack using AI and changed their user interface and created a lot more user engagement because of AI,” Mark Mahaney, Internet analyst at Evercore ISI, said in an interview on CNBC’s “Closing Bell: Overtime” on Wednesday. . “It’s showing in revenue and earnings now,” said Mahaney, who recommends buying Meta stock.
Meta shares rose 7% in extended trading after Wednesday’s earnings report, which included a bullish forecast for the current quarter.
Like other large-cap tech companies, Meta is spending billions of dollars by Nvidia graphics processing units (GPUs), which are needed to train artificial intelligence models and run heavy workloads. Some industry experts have questioned the spending because much of the investment is tied to expectations that generative artificial intelligence — popularized by OpenAI’s ChatGPT — will lead to big revenue gains in the future.
“I’ve already seen a comeback”
Meta shows that while the bet is on significant growth down the road, the company is reaping the rewards today.
“You’ve already seen a comeback with Meta in the last couple of years,” Mahaney said.
Angelo Zino, an analyst at CFRA Research, agreed with Mahaney, telling CNBC that Meta “really addressed some of the concerns and storms” two years ago and is “clearly integrating AI into its ecosystem extremely nicely.”
Zino noted that Meta’s growth rates are “handsomely outpacing those of its peers.”
Meta isn’t done spending big on AI and the distant metaverse, which continues to they lose billions of dollars every quarter. Li said Meta expects “significant CapEx growth in 2025 as we invest to support our AI research and product development efforts.”
For 2024, Meta said it now expects capital spending in the range of $37 billion to $40 billion, up from the low end of that range, which was $35 billion.
Li says investors should think of Meta’s AI strategy as a two-pronged approach, with the “AI core” helping Meta improve its advertising platform and recommendation system, leading to greater user engagement and ad performance which “translate into revenue gains”.
Generative AI is a long-term bet. Lee said the company doesn’t “expect Gen AI products to be a significant revenue driver in ’24, but we expect new revenue opportunities will open up over time that will allow us to generate a solid return on our investment.” .
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