Facebook's parent company Meta reports robust worldwide ad revenue while controlling AI expenses

Facebook's parent company Meta reports robust worldwide ad revenue while controlling AI expenses

According to LSEG statistics, the parent company of Facebook and Instagram said that it expects third-quarter revenue in the range of $38.5 billion to $41 billion, with the midpoint of that range being higher than analysts' projections of $39.1 billion.

On Wednesday, Meta Platforms released a positive sales prediction for the third quarter, exceeding market forecasts for second-quarter revenue and indicating that strong digital ad spending on its social media platforms may offset its artificial intelligence expenditures.

Following the bell, the company's shares increased by 6.8%.

According to LSEG statistics, the parent company of Facebook and Instagram said that it expects third-quarter revenue in the range of $38.5 billion to $41 billion, with the midpoint of that range being higher than analysts' projections of $39.1 billion.

According to Meta, revenue increased by 22% to $39.1 billion during the April to June quarter, surpassing analysts' projected revenue of $38.3 billion.

During a call with analysts, Meta Chief Financial Officer Susan Li stated that the company was "continuing to see healthy global advertising demand" and that it was benefiting from a multi-year project that used artificial intelligence to enhance the platforms' digital ad targeting, ranking, and delivery systems.

While new generative AI capabilities like chat assistants will take longer to commercialize, Li and Chief Executive Mark Zuckerberg said that such tools would continue to fuel growth in the next two years.

Following the release of the Meta study, shares of the social networking app Snap—which also mostly depends on digital advertising—rose by 3%.

"This quarter's results are likely to allay any concerns investors may have had about Meta's spending on AI and the metaverse," eMarketer analyst Max Willens said.

"With its margins as healthy as they are, Meta's investors should feel comfortable with the company's vigorous investments in its plans for the future," Willens said.

Despite a 7% increase in expenditures, Meta's revenue growth significantly outpaced expense growth in the second quarter, resulting in an operating margin increase of 9 percentage points, from 29% to 38%.

The business tracks the number of unique users that access any of its applications each day using a measure called family daily active people (DAP), which was up 7% year over year to an average of 3.27 billion for June.

Meta's profits come after other major players in the tech sector released dismal results that suggested Wall Street will have to wait longer to see the benefits of their large expenditures in AI technology.

While Alphabet, the parent company of Google, issued a warning last week about continuing to increase its capital expenditure for the remainder of the year, Microsoft said on Tuesday that it will invest more money in developing AI infrastructure this fiscal year.

Similar to those two businesses, Meta has been flooding its data centers with billions of dollars in an attempt to cash in on the generative AI wave. After it revealed a higher-than-expected expenditure plan in April, its stock price dropped sharply, rapidly devaluing the company by $200 billion.

That put an end to a string of profitable quarters for Meta, which has recovered from a 2022 stock market collapse by cutting costs and capitalizing on investor enthusiasm for generative AI technology.

The creator of Sonata Insights, Debra Aho Williamson, said that she saw Meta's findings as a "bellwether" for AI stocks.

"A company's expenditures in AI will be viewed more favorably if it can demonstrate solid outcomes from its main business. The stock may seem riskier if the company's main business exhibits any signs of deterioration, as we seen with Alphabet's YouTube last week, she said.

Over the last year, Meta has increased recruiting, especially for AI engineers, while discreetly disbanding teams in other areas. The company reported a 1% decrease in headcount year over year on Wednesday, but Li said she anticipated a "meaningfully higher" headcount by year's end.

The social media behemoth also said it will keep investing heavily on AI infrastructure, projecting capital expenditures of $37 billion to $40 billion in 2024—a $2 billion increase at the lower end of its earlier estimate of $35 billion to $40 billion.

The company maintained its $96 billion to $99 billion annual total expenditure estimate for the year, but issued a warning that infrastructure expenses would remain a "significant driver" of expense rise in 2025.

Losses from the business's metaverse division, Reality Labs, which creates augmented reality glasses, smart glasses including Ray-Ban sunglasses from EssilorLuxottica, and virtual reality headsets, will also "increase meaningfully," the statement said.

Reality Labs lost about $4.5 billion in the second quarter, despite Meta officials' claims that the most recent version of the smart glasses was a larger success than anticipated. Li attributed the unit's revenue gain mostly to sales of its Quest virtual reality headsets.