Meta Platforms Inc. (META, Financial), formerly known as Facebook, is a company of controversy. Its platforms are known for being highly sticky with users and even addictive for some. The business has faced immense competition from TikTok, but its founder, Mark Zuckerberg, is truly an executional visionary. In this analysis, I will break down Meta’s latest artificial intelligence features and its financials. Let’s dive in.
Meta’s new AI tools
At Meta Connect on Sept. 27 and 28, Zuckerberg launched a suite of new artificial intelligence tools for the company's Family of Apps.
One of them is Meta AI, a personalized chat experience that connects directly with WhatsApp, Instagram and Messenger. Ironically, the software will use Microsoft’s (MSFT, Financial) Bing Chat, which further cements the company as a leader in AI against Alphabet's (GOOG, Financial) Google.
The company is also offering different AI avatar characters, who are played by celebrities like Tom Brady, Snoop Dogg, Paris Hilton and Charli D'Amelio. Users will be able to chat and interact with these avatars on its three main messaging apps.
While these are fun tools, the real potential is when such AI avatars are integrated into the Metaverse and can be called upon like real friends.
The Metaverse
Zuckerberg has been criticized for investing billions of dollars into the Metaverse. However, he has recently showcased prototypes of incredibly innovative products, including a “Codec Avatar”, which is basically a realistic graphical version of an individual's face. The idea is to help move forward Meta’s mission of “connecting people." In a September Podcast with Lex Fridman, Zuckerberg showcased the tool as both guests did a full podcast as Codec Avatars. This included detailed facial expressions of an individual and truly helped to bridge a deeper connection.
To accomplish this, both individuals had their face scanned before, which was then transformed into a digital file (or codec). This was then compressed to be “more bandwidth efficient than video,” according to Zuckerberg.
The potential includes achieving a closer connection with loved ones who do not live nearby and improving the interaction between co-workers inside a virtual work environment.
Meta also launched its Oculus Quest 3 headset. This is different from prior headsets, which were purely virtual reality. The new headset is a mixed reality headset, which means a user can tap the side of the headset to see their real world space. This also enables augmented reality games, such as shooter games, where a person can duck behind their real couch.
The company also announced a partnership with the Xbox game pass, which enables thousands of popular games such as "Halo" to be played directly on the headset.
In terms of work focus, Meta deepened its partnership with Microsoft to offer a suite of productivity apps, such as Word and Powerpoint, directly via Oculus.
Leading technology consultancy Accenture (ACN, Financial) also strengthened its partnership with Meta to help create tech-focused solutions for businesses.
Meta also launched the next generation version of its smart glasses with Ray Ban. This will enable AI avatars to be incorporated into real-world experiences.
Strong management
Zuckerberg is an incredible leader and tech entrepreneur. He is used to being misunderstood and not afraid to go against the grain. In the case of the Metaverse and Oculus, he sees it as the next “computing platform.” This would also help free up Meta from the grasp of Apple (AAPL, Financial), which has control over the iOS app store.
I believe this has helped motivate Apple to launch its Vision Pro headset in order to protect its core technology business model.
Stable financials
Meta Platforms reported strong financial results for the second quarter of 2023 in July. The company generated revenue of $32 billion, which increased by 11% year over year and beat analyst forecasts by $968 million.
Its monthly active people rose by 6% year over year to 3.88 billion across its entire family of apps. In addition, its Facebook monthly active users increased 3% year over year to 3.03 billion.
Ad impressions increased by 34% year over year. However, its average price per ad was still down 16%, driven mainly by advertisers pulling back on advertising spend.
Despite this, its average revenue per user increased to $10.63, surpassing analyst forecasts of $10.22.
Its short-form videos, called Reels, expanded to 200 billion views per day at an annual revenue run rate of $10 billion, up from just $3 billion in the prior-year quarter.
North America reported a slowing advertising revenue growth rate, increasing by 11% year over year. Emerging markets continued to be strong though, increasing ad revenue by 16% year over year.
WhatsApp still offers a major opportunity with over 1 billion users. Its daily click to WhatsApp ads rose by 80% year over year.
Its earnings per share was $2.98, topping forecasts by 7 cents.
Valuation
Meta trades with a price-sales ratio of 6.5, which is cheaper than its five-year average.
The GF Value Line indicates a fair value of $337 per share based on historical ratios, past financial performance and analysts' future earnings projections. Thus the stock is modestly undervalued at the time of writing.
Final thoughts
Meta Platforms is a tremendous company that has a range of leading and addictive digital products. Zuckerberg is a true visionary and is creating the next wave of transformation with the Metaverse. This may have seemed crazy just last year, but the realistic codec avatars are something special and could drive major revenue in the years to come.
