Meta Platforms:Quarterly Results/2024 Q1

Return to: Earnings Season

See also: Sheet:Meta Platforms | Discussions | Meta Platforms:Quarterly Results/2023 Q4 | Earnings Season:2023 Q3 | Meta Platforms:Quarterly Results/2023 Q3 | Meta Platforms:Quarterly Results/2023 Q2

Results

Here are the Q1 2024 numbers:

• Revenue rose by 27% y/y to $36.46 billion, in-line with management upper guidance and above analysts’ estimate of $36.14 billion.
• Earnings per share was $4.71 versus analysts’ estimate of $4.31 while operating margin rose to 38% from 25% a year ago.
• The average Family daily active people (DAP) rose 7% y/y to 3.24 billion (analysts’ estimate: 3.21 billion).
• Meta is guiding Q2 2024 revenue in the range of $36.5-39 billion (analysts’ estimate: $38.2 billion or +25.9% y/y), updating its 2024 total expenses to a range of $96-99 billion from $94-99 billion due to higher infrastracture and legal costs and 2024 capex to a range of $35-40 billion from $30-37 billion due to continued scale up in its AI infrastracture.

Earnings Call Summary

Here is a summary of the earnings call.

AI

• They are building a number of different AI services including Meta AI, Creator AI and Business AI.
• Zuckerberg said the initial rollout of Meta AI is going well and that "tens of millions of people have already tried it."
• Zuckerberg said feedback on Meta AI is positive.
• They believe that Meta AI powered by Llama 3 is now the most intelligent AI assistant that can be used freely.
• A lot of user attention on Meta AI has gone to its ability to generate images as you are typing.
• Zuckerberg said the 400+B parameter model that they are testing and will be used in its Llama is on track to become industry-leading on several benchmarks.
• Zuckerberg said they plan to invest significantly in AI in the coming years but that they will continue operating the rest of the business efficiently. "And this leads me to believe that we should invest significantly more over the coming years to build even more advanced models and the largest scale AI services in the world. As we're scaling capex and energy expenses for AI, we'll continue focusing on operating the rest of our company efficiently. But realistically, even with shifting many of our existing resources to focus on AI, we'll still grow our investment envelope meaningfully before we make much revenue from some of these new products."
• Zuckerberg said Meta AI is the main thing he's focused on this year and next year. "But I'd say that's the main thing that I'm focused on for this year and probably a lot of next year is growing that product and the other AI products and the engagement around them." (Q&A)
• Zuckerberg said historically they have seen a lot of stock volatility during times of their product playbook and they expect the same as they scale up on AI.
• Zuckerberg sees building AI as the largest undertaking they have ever done. " But building the leading AI will also be a larger undertaking than the other experiences we've added to our apps, and this is likely going to take several years."
• Some of the areas they plan to monetize AI include scaling business messaging, introducing ads or paid content into AI interactions, and asking people to pay for more compute. Also, AI is already improving engagement.
• They are hearing good feedback on business AIs (Q&A).
• They have seen a large adoption of the GenAI image expansion AI feature with small businesses. This will remain a big focus for them in 2024. (Q&A)
• Regarding their partnership with Google and Microsoft, Zuckerberg said that's only meant to give Meta AI real-time information and that they are not working on search ads or something related (Q&A).
• Zuckerberg doesn't think business messaging will be a next quarter or the quarter after scaling it but not a five-year opportunity either (Q&A).
• Zuckerberg said their ambition and optimism on Meta AI has grown.
• Their plan for Meta AI is to evolve it from

Advertising and recommendation systems

• 30% of the posts on Facebook Feed are delivered by their AI recommendation system (2x over the last couple of years), Zuckerberg said.
• For the first time, more than 50% of the content on Instagram is AI-recommended.
• Revenue flowing through Advantage+ Shopping and Advantage+ App Campaigns has more than doubled since last year.
• Meta Training and Inference Accelerator chip has enabled them to cut recommendations-related costs.
• The singular recommendation system led to an 8% to 10% increase in Facebook Reels watch time (Q&A).
• This year, they plan to deploy the singular recommendation system to Facebook's video tab as well. (Q&A)
• They are optimistic that the new singular recommendation system will lead to improved relevant video recommendations over time. (Q&A).
• Meta Lattice (deployed last year), which consolidates smaller and more specialized models into larger models that can better learn characteristics that improve ad performance across Feeds and Reels and multiple types of ads and objectives at the same time led to improved ad performance over the course of 2023. They plan to enhance its performance in 2024 and add more objectives such as web and ROAS. (Q&A)
• Reels remain a positive contributor to overall revenue (Q&A).
• Advantage+ Audience has led to a 28% decrease in cost per click compared to regular targeting.

Family of Apps

• They are seeing healthy growth in U.S. when it comes to Family of Apps. In particular, the number of WhatsApp daily actives and messages sent in the U.S. keeps gaining momentum.
• Reels now make up 50% of the time spent on Instagram.
• Threads now has more than 150 million monthly actives.
• Video now represents 60% of the time on both Facebook and Instagram.

Q1 Results and future outlook

• The online commerce vertical was the largest contributor to y/y growth in Family of Apps ad revenue (35.6 billion or +27% y/y), followed by gaming and entertainment and media.
• Ad revenue grew the strongest in the Rest of World (40%) and Europe (33%). Asia-Pacific was up 25% and North America grew 22%.
• Impression growth (+20%) was mainly driven by Asia-Pacific and Rest of World.
• Pricing growth (+6%) was driven by advertiser demand, which was partially offset by strong impression growth, particularly from lower-monetizing regions and surfaces.
• Family of Apps other revenue rose 85% y/y to $380 million, driven by business messaging revenue growth from WhatsApp Business Platform.
• CFO Susan Li said growt in spend among Chinese advertisers remained strong in Q1, driven by online commerce and gaming. She didn't give outlook but said "they are lapping periods of increasingly strong demand over the course of 2024 given the recovery of China-based advertisers in 2023 from their prior pandemic-driven headwinds." (Q&A)
• They said full year 2024 but will influence by a number of factors such as macro conditions which is hard to predict and that they will be lapping periods of increasingly strong demand. (Q&A)
• Li said they grew conversions in Q1 faster than they grew impressions (Q&A).
• Li said they follow an ROI-driven approach when it comes to core AI work but on strategic bets (GenAI) they are still much earlier on the return curve (Q&A).

Regulatory

• They have a jury trial in June brought by the State of Texas regarding the use of facial recognition technology. They said this "could ultimately result in a material loss."

Metaverse

• Metaverse continues to remain one of their long-term focus, but it seems they are now focusing more on AR glasses (Aron's thought).
• They are beginning to see AI initiatives increasingly overlap with their Reality Labs project.
• One of the bigger areas they are investing on in Realitity Labs is glasses. "We think that that's going to be a really important platform for the future," Zuckerberg said.

TikTok

• Li said it's still early to assess the impact that TikTok ban will have on the business (Q&A).

Management Guidance and Analysts' Estimate

Management Guidance

	Q1 2024						2024
Key Items	Lower guidance	Y/Y	Midpoint guidance	Y/Y	Upper guidance	Y/Y	Lower guidance	Y/Y	Midpoint guidance	Y/Y	Upper guidance	Y/Y
Revenue	$34.5 billion	20.6%	$35.8 billion	25.0%	$37.0 billion	29.4%
Total expenses							$94 billion	6.6%	$96.5 billion	9.5%	$99 billion	12.3%
Capital expenditure							$30 billion	6.8%	$33.5 billion	19.2%	$37 billiom	31.8%

• Meta said the 2024 total expenses will be driven by higher infrastructure-related costs, growth in payroll expenses and higher Reality Labs operating losses.
• 2024 Capex will be driven by investments in servers.
• Meta expects 2024 tax rate to be in the mid-teens, that's absent to any changes in the U.S Tax Law.

Analysts Estimate

Key Items	Q1 2024	Y/Y	Q2 2024	Y/Y	2024	Y/Y
Revenue	$36.14 billion	26.1%	$38.2 billion	25.9%	$158.4 billion	17.5%
EPS	$4.31	95.9%	$4.76	59.7%	$20.07	34.96%
Family Daily Active People	3.21 billion	6.3%
Ad revenue	$35.59 billion	26.6%
Total expenses					$96.8 billion	9.8%
Capex					$34.3 billion	22.1%

Earnings revisions at Seeking Alpha

Key Items	Q1 2024		2024
	Up revisions	Down revisions	Up revisions	Down revisions
Revenue	29	0	53	1
EPS	30	0	51	1

Analysts Opinions

Monetization and impression volumes are improving

• Buy, $525->$550: Truist sees (April 17, 2023) improving monetization after two years of compression. They also see higher impression volume and growth in "must-buy status" within the digital ad ecosystem as cookie deprecation continues and the macro environment remains volatile. As such, they are raising their forecast for 2024 revenue to $158.7 billion from $156.9 billion. They pointed out that Meta's huge investments in AI are yielding better ranking and recommendation results for advertisers. He cited Sensor Tower data that showed the average daily time spent on Facebook was up 3% y/y while that of TikTok was down 4%.
• Buy, $525->$590: Citi said (April 15, 2024) that their tracker indicates that Reels ad loads grew by 90 basis points QoQ to 20% as engagement continues to improve. They expect Reels ad load will continue to improve amid newer ad innovations, new artificial intelligence video architecture and greater advertiser adoption. Citi cited Sensor Tower data that indicated the average daily minutes spent per user on Instagram was up 4% y/y in Q1 2024.
• Buy, $525->$600: Piper Sandler said (April 11, 2023) their data checks were again positive. They see impressions roughly in line with Q4 2023 and pricing flat year-over-year. Their survey of 6,000 U.S teens established that the average daily hours spent on social media by U.S teens rose by 0.3 hours to 4.7 hours. Additionally, 30% of the respondents voted for Instagram as the most favourite app, up 700 basis points y/y while 35% voted for TikTok (down 300 basis points y/y).
• Buy, $520->$570: Wedbush said they "see a strengthening digital advertising environment heading into 1Q results."

The advertising environment continues to improve

• Buy, $527->$588: Stifel said (April 16, 2024) that their thoughts at the start of Q1 earnings remain "largely unchanged" that the advertising environment continues to improve, e-commerce continues to "hang in there," and subscription names "remain a mixed bag."
• Buy, $500->$590: TD Cowen said (April 9, 2024) their digital ad check was positive, hence they raised their revenue estimates for Q1 2024 and 2024-2029 by 1%-4%.
• Buy, $609->$600: Wells Fargo said their advertising checks suggest continued strong growth.

Meta's 2024 revenue is expected to top forecasts

• Buy, $575: Mizuho said their deep dive on Meta's key products indicates an upside to the consensus revenue forecast for 2024. Things such as improving Reels monetizations, geographic expansion, Amazon Shops partnership, and unified ranking to optimize video placements give Mizuho confidence that Meta's revenue will top the street-consensus estimate of 20%. They also expect Meta's long-term investments in WhatsApp and AI could generate a 65% upside in sales and users over time.
• Buy, $550->$585: Based on their market analysis, Jefferies expects Meta will capture 50% of incremental market dollars in 2024, making its ad revenue grow by 20%, above the 9% industry average as the company scales its AI ad tools which supplement the already good Advantage+ product.

Meta to post positive Q1 results

• Buy, $550: Analyst Justin Post of Bofa said their ad checks and Easter benefits were positive for Meta. He cited Sensor Tower data that indicated healthy Instagram users & time spent (though time spent on Facebook was down Y/Y in Q1). He guided for a conservative Q2 due to dollar depreciation. Post forecasts Meta will report Q2 revenue of between $36.0 billion and $39.5 billion versus the Street estimate of $38.3 billion. Their analysis of Sensor Tower data suggests that Instagram has seen a 6% y/y growth in DAUs to 1.1 billion in Q1 2024 while Facebook was flattish at 1.25 billion DAUs.
  

  Source: Seeking Alpha

Cautionary outlook on Q1 2024

• Buy, $575->$555: Keybanc has a cautionary expectations on Meta's Q1 since it doesn't see much thesis changing on prints and sees an upward bias on capex. The analysts belive that if Meta offers a wide range guidance for Q2 due to Middle East conflixt, it could alarm investors.
  

U.S digital ad spend by Chinese investors fell in Q1

• According to Bernstein analyst Mark Schmulik, U.S digital ad spending by Chinese e-commerce platforms such as Temu declined "meaningfully" in February and March as the company “started to focus efforts elsewhere in face of regulatory uncertainty.” Data from Appfigures points towards the same trend. But the data intelligence firm thinks that Temu is trying to test how much momentum they have already built by turning off/down paid ads .

Source: Appfigures

• Sky Canaves, senior analyst at Insider Intelligence said Temu started shifting marketing spend to other countries towards the end of 2023.

Positive trends in usage of its apps

• Buy, $535: Thanks to WhatsApp and Instagram, Meta owns three of the five apps that recorded the most downloads worldwide, Mark Schmulik of Bernstein wrote.

No much more upside in the share price

• Buy, $550: According to Evercore's Mark Mahaney, there isn't a lot left for investors to stick around when it comes to Meta. However, long-term new growth drivers such as WhatsApp monetization, Facebook Marketplace and maybe Virtual Reality are some things to stick around with. He praised Meta's decision to revamp its targetted ads with generative AI.

Apps Usage Insights

• The number of visits to Meta Platforms rose by 43.67% y/y in Q1 2024, that's according to TipRanks analysis.

Source: TipRanks

Competitor Expectations and Results

Alphabet

Analysts Estimate

Key Items	Q1 2024	Y/Y	Q2 2024	Y/Y	2024	Y/Y
Revenue	$78.59 billion	12.60%	$82.86 billion	11.1%	$342.4 billion	11.4%
Revenues- YouTube ads	$7.71 billion	15.1%
Revenues- Google advertising	$60.18 billion	10.3%
EPS	$1.51	29.1%	$1.68	16.7%	$6.83	17.8%

Earnings Revisions at Seeking Alpha

Key Items	Q1 2024		FY2024
	Up revisions	Down Revisions	Up revisions	Down Revisions
Revenue	11	11	32	13
EPS	16	10	35	12