Meta Platforms (NASDAQ:META) reported solid third-quarter 2024 earnings, surpassing analyst expectations and highlighting its commitment to AI development. Meta’s adjusted earnings of $6.03 per share exceeded the Consensus Estimate by 16.18%, reflecting a 37.4% increase year-over-year. Revenue also outperformed, totaling $40.59 billion—a year-over-year increase of 18.9%. Despite this, Meta shares fell over 3% in after-hours trading, though they’ve gained 67.2% year-to-date, outpacing the Computer & Technology sector’s 27.6% gain.
Meta’s Earnings: Key Metrics and Performance Drivers
Meta’s revenue growth in Q3 was driven largely by increased engagement across its platforms and strong ad revenue. In terms of regional performance, revenue from the U.S. and Canada increased by 15.9%, Asia-Pacific by 18.6%, Europe by 22.1%, and the Rest of the World by 23.9%. The Family of Apps, which includes Facebook, Instagram, Messenger, and WhatsApp, accounted for 99.3% of total revenue, with revenue for this segment rising 18.8% year-over-year.
Daily active users (DAP) across Meta’s platforms reached 3.29 billion, a 4.8% increase year-over-year. Enhanced AI-powered recommendations and a unified video player increased time spent on Facebook by 10%, while Instagram Reels saw strong adoption. Meta’s emphasis on AI-driven recommendations has proven effective in sustaining user engagement and monetization.
AI-Powered Advertising Boosts Revenue
AI-powered advertising has become a cornerstone of Meta’s revenue strategy. In Q3, advertising revenue grew 18.6% year-over-year to $39.89 billion, representing 98.3% of Meta’s total revenue. In constant currency terms, ad revenue surged by 23%, with ad impressions increasing 7% year-over-year, while the average price per ad rose by 11%. Regional ad impression growth rates included a 9% increase in Asia-Pacific, 7% in the U.S. and Canada, and 5% in Europe and other regions.
Meta’s investment in generative AI has benefited its advertising clients, offering tools for image expansion, background creation, and text generation, improving retention rates among advertisers. Other revenue from the Family of Apps grew by 48.1%, reaching $434 million, largely thanks to increased revenue from the WhatsApp Business platform.
Reality Labs and AI Expansion
In addition to its core platforms, Meta’s Reality Labs segment, focusing on augmented and virtual reality (AR/VR), generated $270 million in revenue, a 28.6% year-over-year increase. This growth was attributed to rising hardware sales. Despite this, Reality Labs continues to report losses, with Q3 expenses of $4.8 billion, a 21% year-over-year increase. Meta remains committed to Reality Labs as a long-term investment, expecting operating losses for this division to rise in 2024.
Operating Costs and Financial Stability
Total costs and expenses for Meta in Q3 reached $23.24 billion, a 13.9% increase year-over-year, accounting for 57.3% of revenue, down from 59.7% a year ago. The Family of Apps’ expenses rose by 13%, driven by higher infrastructure costs and staffing, while Reality Labs’ costs were up 21%. Meta’s focus on cost management led to a 150 basis point decrease in marketing and sales expenses as a percentage of revenue, with operating income rising 26.2% to $17.35 billion and the operating margin expanding to 42.7%.
Meta closed Q3 with $70.90 billion in cash and cash equivalents, a 22% increase since June. Long-term debt was up to $28.82 billion, while free cash flow totaled $15.52 billion, up from $10.9 billion in the previous quarter. The company repurchased $8.86 billion in stock and paid $1.26 billion in dividends during the quarter, reinforcing its strong capital management.
Forward Guidance and AI Prospects
For Q4, Meta anticipates revenue between $45 billion and $48 billion, assuming a neutral foreign exchange impact on year-over-year growth. Total expenses are expected to remain in the $96 billion to $98 billion range for 2024. Meta projects 2024 capital expenditures between $38 billion and $40 billion, driven by its continued investment in AI and Reality Labs.
Why Meta’s Stock Remains Attractive
Meta’s focus on AI to enhance user engagement and boost advertising revenue is positioning the company as a leader in both social media and AI-driven advertising. Meta’s stock, trading at a Price/Sales ratio of 8.28x compared to the Zacks Internet Software industry average of 2.75x, reflects its premium valuation but also the market’s confidence in its AI-centric strategy.
While competition from peers like Alphabet (NASDAQ:GOOGL), Apple (NASDAQ:AAPL), and Amazon (NASDAQ:AMZN) remains strong, Meta’s consistent quarterly earnings beats and expanded AI-driven capabilities keep it well-positioned. Looking ahead, Meta’s blend of AI advancements and an expanding user base among young adults are expected to drive growth, making it a compelling stock for investors focused on the future of technology and digital advertising.
Featured Image: Megapixl
