Facebook parent Meta delivers a strong quarter, sending shares higher

Meta Platforms beat market expectations for second-quarter revenue on Wednesday and issued a rosy third-quarter sales forecast, signaling that strong digital ad spending on its social media platforms could cover the cost of capital investment. of artificial intelligence.

The company’s shares rose 4% after the bell.

The parent company of Facebook and Instagram said it expects third-quarter revenue in the range of $38.5 billion to $41 billion, slightly higher than the average analyst estimate of $39.1 billion, according to LSEG data. .

It said revenue rose 22% to $39.1 billion for the April-June period, compared with analysts’ expectations of $38.3 billion.

“Any concerns investors may have had about Meta’s spending on AI and the metaverse will likely be assuaged by this quarter’s results,” said eMarketer analyst Max Willens.

“With its margins as healthy as they are, Meta investors should feel comfortable with the company’s strong investments in its plans for the future,” added Willens.

Shares of social media app Snap, which like Meta relies heavily on digital advertising, rose 3% after Meta’s report.

Although Meta’s costs rose 7% in the second quarter, its revenue growth significantly outpaced the increase in expenses and led to a 9-point increase in operating margin, to 38% from 29%.

Daily Active Household People (DAP), a metric used by the company to track how many unique users per day open one of its apps, also rose 7% year over year to an average of 3.27 billion for June .

Meta’s gains come after disappointing results posted by other tech industry companies, which suggested the payoff from big investments in AI technology may take longer than Wall Street had hoped.

Microsoft said on Tuesday it would spend more money this fiscal year to build its AI infrastructure, while Google parent Alphabet warned last week that its capital spending would remain high for the rest of the year.

Like both of these companies, Meta has invested billions of dollars in its data centers in an effort to capitalize on the AI ​​generation boom. Its shares sank in April after it revealed a higher-than-expected spending forecast, quickly knocking $200 billion off its stock market value.

That capped a string of strong quarters for Meta, which has bounced back from a share price slump in 2022, shedding its workforce and building on investor enthusiasm for AI-generating technologies.

Meta has been hiring over the past year, particularly of AI engineers, as it continues to quietly disperse teams elsewhere. It said on Wednesday that its headcount was down 1% year-on-year.

The social media giant also signaled that it will continue to spend heavily on AI infrastructure, predicting that 2024 capital spending will be between $37 billion and $40 billion, up $2 billion on the bottom line from its previous forecast. of 35 to 40 billion dollars.

He left the total spending forecast for the year unchanged at $96 billion to $99 billion, while warning that infrastructure costs will continue to be a “significant driver” of spending growth in 2025.

Losses related to the company’s Metaverse unit Reality Labs, which makes its virtual reality headsets, smart glasses and upcoming augmented reality glasses, will also continue to “increase significantly,” he said.

Meta has updated its ad buying products with AI tools and short video formats to boost revenue growth, while also introducing new AI features like chat assistants to drive engagement on its social media properties.

In a departure from its peers, Meta has released its AI models mostly for free, betting that this approach will pay off in the form of innovative products, less dependence on potential competitors and greater engagement in its networks. main social.

The company will also benefit if developers use its free models over paid ones, which would undercut rivals’ business models. Developers generally view Microsoft-backed OpenAI as the industry leader, but Meta revealed major performance gains with its Llama 3 release last week that could make its models more attractive.