In a bid to stay ahead in the AI race, Meta Platforms (META, Financial) has once again raised its FY24 capex guidance in its Q2 earnings report. Unlike last quarter, shareholders are reacting positively, reflecting growing confidence in Mark Zuckerberg's ambitious spending plans. Unlike the heavy investments in the unprofitable metaverse in 2022, which saw the stock plummet by 65%, investors are seeing tangible returns from META's AI investments.
- Q2 revenue surged by 22% to $39.1 billion, surpassing expectations, driven by its robust advertising business. Powered by its Llama 3 large language model, META's AI functionalities are enhancing advertisers' ROI by identifying potential customers across its platforms. CFO Susan Li noted a 22% increase in return on ad spending in the U.S.
-
META's social media apps are also expanding. WhatsApp now boasts over 100 million monthly active users in the U.S., contributing to a 7% year-over-year increase in Daily Active People (DAP) to 3.27 billion across all META platforms.
- This user growth, combined with new AI capabilities, led to a 10% increase in both ad impressions delivered and average price per ad.
-
Concerns about softening advertising spending were alleviated. Pinterest (PINS, Financial) had issued downside Q3 revenue guidance, and Alphabet (GOOG, Financial) reported a slight slowdown in Q2 advertising revenue growth. However, META exceeded Q2 revenue estimates and provided Q3 revenue guidance of $38.5-41.0 billion, slightly above expectations at the midpoint.
- This strong performance reinforces that META's AI investments are paying off as advertisers shift to its platforms.
- META raised the low end of its FY24 capex guidance to $37-$40 billion, up from the prior $35-$40 billion. Zuckerberg emphasized that there are no plans to slow down investments.
- Capex is expected to grow significantly in 2025 and continue to increase over multiple years. Zuckerberg believes that underinvesting in AI capacity poses a greater risk than over-building, given AI's crucial role in the next 10-15 years.
META's strong Q2 results, including a 73% year-over-year surge in EPS to $5.16, demonstrate a balance between earnings growth and future investment.
