Meta and Zuck Pitched AI, and the Market Liked What It Heard
Meta reported Q2 2024 business results ahead of expectations today, and the market’s positive response to the earnings report is a bellwether for AI stocks.
If a company can show strong results from its core business, its investments in AI will be seen more positively. If the core business is showing any sign of weakness—as we saw with Alphabet’s YouTube—then the stock may seem more risky.
Meta stands out from other tech firms that have AI ambitions because it already brings in a massive amount of revenue from digital advertising. It’s not trying to build a new business from scratch. And unlike Google, which is grappling with making changes that will impact its core ad business, most of Meta’s AI investments are either aimed at making advertising on its properties work better, or at building new features that could eventually become revenue drivers.
Here are six other takeaways from the earnings report and conference call
AI spending
While capital expenses came in slightly lower than expected for the quarter, the overall picture for the year is still quite high. Meta narrowed the capex estimate from the previous $35-$40 billion to $37-$40 billion. That, along with the fact that Meta expects “significant” capex growth in 2025 tells me that Meta will continue to invest as much as it possibly can in building out its AI business and infrastructure.
Revenue + ad revenue
At 22%, revenue was up strongly for Meta in the quarter. Advertising still accounts for a massive share of Meta’s revenue—98.1% in the quarter. This bedrock is what is helping Meta to withstand the pressure about AI spending that other companies may be facing.
AI usage
Mark Zuckerberg boldly stated that Meta AI is on track to be the most used AI assistant in the world this year. That sounds significant but without knowing what metric they’re basing that on, it’s difficult to know if he’s boasting or goading OpenAI (whose ChatGPT is typically seen as the most widely used AI assistant).
Still, Meta has a huge head start given that it has billions of users of its apps, and by making AI features available in-app, it will be easy for users who are interested to try those features.
AI monetization
Zuck and CFO Susan Li both made pointed statements about the path toward monetizing Meta’s AI initiatives. Zuck said it would be “years” before AI features would be monetized and he reminded analysts that Meta typically lets usage and engagement grow for some time before adding monetization. And Susan said that she didn’t expect generative AI to be a “meaningful” driver of revenue in 2024.
That said, AI is underpinning many of Meta’s underlying systems for creating and delivering ads and for determining what content to show users. So even if AI isn’t directly being monetized, it IS a factor that is helping lead to better ad performance and greater user engagement.
WhatsApp growth
Zuck’s been on a bit of a WhatsApp rant the past few calls and this call was no different. He called it out several times, pointing to the growth of WhatsApp in the US as a meaningful sign, considering that the US is a large portion of Meta’s revenue (43.1% in the quarter, though interestingly, that’s down from 45.1% in Q2 2023; Europe and rest of world are both up, proportionally).
Threads
Zuck casually dropped a big stat on the call: Threads is close to hitting the 200 million user mark. But when will it have ads? That could be further off.
Media reports indicated that Meta could launch Threads ads in H2 2024. Threads was introduced in July 2023, which puts that timing in line with other examples. Meta (then Facebook) launched ads in Instagram Stories in March 2017, 7 months after the August 2016 launch of Stories.
But ads in Threads doesn’t seem like it will be monumental news story it could have been. Even though it’s growing, Threads still hasn’t found its way as an app, and X is showing unexpected momentum in usage, thanks to the Olympics, Joe Biden and owner Elon Musk’s own posts.
Tune in Thursday 8/1 at 10:20am ET
If you're in Canada you can catch me on BNN Bloomberg, where I'll be breaking down Meta's results with anchor Jon Erlichman.
More news coverage
Thank you to Katie Paul Ryan Deffenbaugh Barbara Ortutay and Julie Jammot for featuring me in your Meta earnings coverage today:
Facebook parent Meta sees strong global ad sales while keeping AI costs in check
Facebook parent Meta posts stronger-than-expected Q2 results, sending shares higher
