Meta is beginning to see the benefits of its substantial investments in AI, according to the company’s Q2 earnings, even as it prepares for heavy losses in the coming months.
Revenues were up 22 percent YoY in the last quarter, generating $39.07 billion during the three months. By way of contrast, Google ad sales rose 11 percent YoY over the same period.
Advertising makes up 98 percent of Meta’s revenues, and the tech giant boosted ad revenues across Facebook and Instagram. Ad impressions across Meta apps were up 10 percent YoY, according to the company, while average price per ad also increased by 10 percent.
These monetisation improvements are where Meta is already seeing gains from its AI expenditure, using the tech to optimise budget allocation, audience expansion and ad targeting.
“Among big tech, Meta is perhaps best placed to realise short-term returns on its AI investments,” comments Jamie MacEwan, Senior Media Analyst at Enders Analysis. “Unlike Google with search, Meta does not have to be concerned about Gen AI replacing its core social networks.”
Doubling down
The update follows the worst week for tech stocks in more than 18 months, as earnings updates from Google and Microsoft prompted a slump in AI equities. Mark Zuckerberg also spooked investors earlier this year by committing $35-40 billion to developing AI models, pledging to make Meta “the leading AI company in the world.”
Now the CEO is doubling down on those ambitions, claiming Meta is “on track to be the most used AI assistant in the world by the end of the year,” and raising its full-year capital expenditure forecast to $37-40 billion. The figure remains below Microsoft’s capex which has soared 75 percent in the last year, reaching $55.7 billion.
“Meta’s cost control around AI looks better than its rivals, with its capex growth rate coming in at less than half Google or Microsoft’s,” says MacEwan.
Leaning on ads
Meta’s share price jumped about 7 percent after the update, as Meta projected further gains in its third-quarter revenues; the guidance came in at $38.5-41 billion.
However, the company also expects operating losses from its Reality Labs division to “increase meaningfully” this year, due to ongoing development of metaverse projects and its Ray-Ban smart glasses.
Further costs and expenses are on the horizon, but the company is leaning on its healthy ads business to justify its hefty AI investment.
“Meta doesn’t expect to actually make money from gen AI for years, but ‘Core AI’, where they use the tech to improve ad targeting and content recommendations, is already having an impact,” says MacEwan. “The message to investors is it is better to be early than late, and that this AI infrastructure could be redirected towards core revenue drivers like ranking and recommendations should the demand for pure gen AI products not pan out as hoped.”
