Meta Platforms:Quarterly Results/2024 Q2

Return to: Earnings Season

See also: Sheet:Meta Platforms | Discussions | Meta Platforms:Quarterly Results/2024 Q1| Meta Platforms:Quarterly Results/2023 Q4 | Earnings Season:2023 Q3 | Meta Platforms:Quarterly Results/2023 Q3 | Meta Platforms:Quarterly Results/2023 Q2

Earnings Results Summary

See: Q2 2024 Meta Platforms Press Release

• Meta Q2 2024 revenue rose by 22% y/y to $39.1 billion, in-line with management’s 2 upper guidance and topping analysts estimate of $38.3 billion.
• EPS was $5.16 versus analysts estimate of $4.72 while operating margin rose to 38% from 29% a year ago.
• The average Family daily active people (DAP) grew by 7% y/y to 3.27 billion, exceeding analysts estimate of 3.26 billion.
• Meta’s capital expenditures during the quarter were $8.47 billion, lower-than $9.5 billion estimate.
• Meta is guiding Q3 2024 revenue in the range of $38.5-41 billion (analysts estimate: $39.14 billion), reiterating its 2024 total expenses guidance in the range of $96-99 billion and raising its 2024 capex outlook to a range of $37-40 billion (analysts estimate: $38 billion) from $35-40 billion.
• The company said it expects higher expenses and capital expenditure in 2025 compared to 2024 due to higher infrastructure costs.

“While we do not intend to provide any quantitative guidance for 2025 until the fourth quarter call, we expect infrastructure costs will be a significant driver of expense growth next year as we recognize depreciation and operating costs associated with our expanded infrastructure footprint.” “While we continue to refine our plans for next year, we currently expect significant capital expenditures growth in 2025 as we invest to support our artificial intelligence research and product development efforts.”

Earnings Call and Follow-up Q&A Summary

Here is the: Earnings Webcast Call | Earnings Call Transcript | Follow-up Call Q&A Transcript

AI

• AI advances continue to improve the quality of recommendations and drive engagement across Facebook and Instagram.
• Zuckerberg said during the quarter they rolled out "full screen video player and unified video recommendation service across Facebook, bringing Reels, longer videos, and live into a single experience."
• In future AI will be able to generate creative for advertisers and even personalize it, Zuckerberg said.
• Zuckerberg said Meta AI is on track to become the most used AI assistant by the end of the year, improving quickly both on Intelligence and features.
• Business AIs are in Alpha testing with more and more businesses. Zuckerberg thinks that in future every business will have an AI agent and that will dramatically increase their business messaging revenue once at scale.
• Zuckerberg said that in the past open compute was able to save them billions.
• Zuckerberg pointed out that Llama 4 will use 10x more compute than Llama 3, adding that he rather invest now than wait until they are too late. "The amount of compute needed to train Llama 4 will likely be almost 10 times more than what we used to train Llama 3, and future models will continue to grow beyond that. It's hard to predict how this trend -- how this will trend multiple generations out into the future. But at this point, I'd rather risk building capacity before it is needed rather than too late, given the long lead times for spinning up new inference projects."
• CFO Susan Li said people have used Meta AI for billions of queries since launching it.

• Li said they believe that over time Gen AI will play a growing role with how businesses engage with customers. "Looking forward, we believe Generative AI will play a growing role in how businesses market and engage with customers at scale. We expect this technology will continue to make it easier for businesses to develop customized and diverse ad creatives. We've seen promising early results since introducing our first Generative AI ad features, image expansion, background generation, and text generation with more than 1 million advertisers using at least one of these solutions in the past month."
• Zuckerberg said it's still early to see results on Meta AI.
• Li said they don't expect GenAI to be a meaningful driver of revenue in 2024 or 2025.

Q2 Results

• Online commercial vertical was the biggest contributor to y/y ad revenue growth in Q2 followed by gaming and entertainment and media.
• Ad revenue growth was strongest in Rest of World and Europe at 33% and 26% respectively on a user geography basis. Asia Pacific and North America grew at 20% and 17% respectively.
• On an advertiser geography basis, total revenue growth was strongest in Asia Pacific at 28%, a deceleration from 41% in Q1 due to lapping of stronger-demand from China-based advertisers.
• Ad impressions grew by 10% in Q2 driven mostly by Asia Pacific and rest of world.
• Average price per ad rose by 10% in Q2 driven by increase advertiser demand as a result of improved ad performance offset by improved impression especially from lower monetizing regions and surfaces.
• Family of Apps other revenue rose 73% y/y driven mostly by business messaging revenue growth from WhatsApp Business.
• Li said in the follow-up call that G&A expenses included the settlement with the state of Texas.

Future outlook

• Li said their investments on AI are informed by returns they have seen or expect to achieve across the platforms. "Our ongoing investment in core AI capacity is informed by the strong returns we've seen and expect to deliver in the future, as we advance the relevance of recommended content and ads on our platform. While we expect the returns from Generative AI to come in over a longer period of time, we’re mapping these investments against the significant monetization opportunities that we expect to be unlocked across customized ad creative, business messaging, a leading AI assistant and organic content generation."
• Susan Li said ad market continues to be healthy and that they will be lapping strong comps in Q3 (Q&A). "We are continuing to see healthy global advertising demand, and we are also delivering ongoing ad performance improvements just related to all of the investments that we've continued to make over time. And improving the sort of ads, targeting ranking, delivery, all of the fundamental infrastructure there. And we expect that all of that will continue to benefit ad spend in Q3. We do expect year-over-year growth to slow in Q3, as we are lapping strong growth from China-based advertisers, as well as strong Reels impression growth from a year ago. And we also expect modestly larger FX headwinds in Q3 based on current rates."
• Li said the expect broad-based strength seen in Q2 to develop again in Q3 (Q&A). " And we saw basically in Q2 where revenue grew 22% that there was broad-based strength across regions and verticals including particular strength among smaller advertisers, and we expect that generally to continue into Q3."
• Li pointed out that they continue to be disciplined on headcount but they expect it to be meaningfully higher in 2024 than in 2023- due to the headcount underrun as a result of prolong hiring freeze in 2023 (FQ&A).
• Susan Li said they will build their infrastructure with flexibility in mind (Q&A). "We are continuing to build our AI infrastructure with fungibility in mind, so that we can flex capacity where we think it will be put to best use. The infrastructure that we build for gen AI training can also be used for Gen AI inference. We can also use it for ranking and recommendations by making certain modifications like adding general compute and storage. And we are also employing a strategy of staging our data center sites, at various phases of development, which allows us to flex up to meet more demand and less lead time if needed while limiting how much spend we are committing to in the outer years."
• Zuckerberg said they will continue being committed to operational efficiency across the company as they scale AI investments.
• Li said in the follow-up call that they feel good about the pricing trends. "We feel good about the cost per action trends we're seeing. We think that those are healthy."
• Li said in the follow-up call that their compute needs currently outstrip the available data centres and they have had to shift capacity around to free up capacity for GenAI training and that leads to foregone revenue but they have factored that in Q3 guidance. "Our compute needs outstrip our available data center capacity right now...We've also had to do a little bit of shifting capacity around to free up capacity for GenAI training. And altogether, we expect that that will result in some foregone revenue growth from ads and organic content ranking improvements that we would have otherwise made, but that has been factored into our Q3 outlook. And we generally expect this to be to be a near term dynamic until we start bringing additional data center capacity online next year, which will meet our capacity needs."
• Li said in the follow-up call that the incremental revenue from ads business this year and next year is primarily a function of core AI work. "The incremental revenue that you see this year and largely next year, coming from the ads business, that will primarily be a function of the investments that we have been making in the core AI work that goes into the ongoing ads performance improvements as we make our ranking, delivery, targeting, et cetera systems, more performant over time."
• Li said in the follow-up call that they shared last time that two-thirds of their China ad revenue comes from advertisers outside the top 10 spenders in China in 2023. "We don't have an update on that for this year, but I would say it continues to be a diverse advertiser base. And more broadly, I think we are continuing to see a longer-term trend of growth from China-based advertisers...And again, most of our China-based ad revenue continues to come from a longer tail of advertisers," she added.

Advertising and recommendation systems

• Zuckerberg pointed out that their unified recommendations have increased engagement on Facebook Reels more than their move from CPUs to GPUs did.
• Zuckerberg pointed out that they want to move to a single unified recommendation over time. He noted that they are making good progress here.

• Li said they are increasingly becoming better at determining the best ads to show and when to show, hence enabling them to drive revenue conversions without growing the number of ad loads.
• Instagram Reels engagement continues to grow as they make enhancements to their recommendations system, CFO Susan Li said.
• Li highlighted a study conducted this year that showed 22% higher-return on ad spend by adopting Advantage+ Shopping campaigns.
• VP Chad Heaton said in the follow-up call that they currently don't have opportunities for ramping up Reels ad load significantly as they did last year but they will be focusing on optimizing the level of ads.
• Analyst Richard Greenfield of Lightshed pointed out that the last time Meta shared that it had 12 million advertisers (FQA).

Family of Apps

• Growth in U.S has been a bright spot. Efforts that they started a few years ago on focusing their apps more on the 18 to 29 year olds are driving good results.
• "We have seen healthy growth in young adult app usage in the US and Canada for the past several quarters. And we have seen that products like Groups and Marketplace have seen particular traction with young adults," CFO Susan Li said (Q&A).
• Threads is now about to hit 200 million monthly actives.
• WhatsApp now serves more than 100 million monthly actives in the U.S.
• Zuckerberg signaled that they will not start monetizing Threads until it hits a billion users (Q&A). " Threads, I think it is another example of something that it got off to about as good of a start of any app that I can think of. I think, it was the fastest growing app to 100 million people. And it is a good reminder that even when you have that start, the path from there to 1 billion people using an app is still multiple years. And that's our product cycle... So I think that's something that our investors and folks thinking about analyzing the business, if needed to always grapple with, is all these new products, we ship them and then there is a multiyear time horizon between scaling them and then scaling them into not just consumer experiences but very large businesses."
• Li said (Q&A) shop ads y/y growth rate is strong and is driving incremental performance for advertisers.

Metaverse

• Metaverse remains their other long-term focus, Zuckerberg said. "Reality Labs remains our other long-term initiative that we continue to invest meaningfully in," CFO Susan Li said.
• Zuckerberg said Ray-Ban Meta Glasses continue to be a bigger hit sooner than expected, thanks in part to AI. That demand is still outpacing their supply.
• Quest 3 sales are also exceeding Meta's expectations.
• Mark Zuckerberg said EssilorLuxottica is doing better-than expected in delivering the mandates of their partnership and that they are now in the second generation of the Ray-Ban Meta glasses.
• Susan Li said in the follow-up call that they are shifting the investment focus towards AR. "Within that envelope, we are certainly seeing that we are shifting some energy towards AR glasses in particular. I think the traction that we have seen with the Ray-Ban Meta glasses and the product market fit and demand for the product out of the market, and the overlap with our AI efforts where the glasses form factor is really such an intuitive way to bring an AI assistant with you around that sees what you see and hears what you hear."
  

Management expectations and analysts estimates

Management expectations

Key Items	Q2 2024						2024
	Lower-point	Y/Y	Mid-point	Y/Y	Upper-point	Y/Y	Lower-point	Y/Y	Mid-point	Y/Y	Upper-point	Y/Y
Revenue	$36.5 billion	14.06%	$37.75 billion	17.97%	$39.0 billion	21.88%
Total expenses							$96 billion	8.91%	$97.5 billion	10.61%	$99 billion	12.31%
Capital expenditure							$35 billion	24.56%	$37.5 billion	33.45%	$40 billion	42.35%

• Q2 2024 revenue growth guidance assumes a 1% foreign currency headwind.
• Meta Platforms expects full-year 2024 tax rate to be in the mid-teens.

Analysts estimates

Key Items	Q2 2024	Y/Y	Q3 2024	Y/Y	2024	Y/Y
Revenue	$38.3 billion	19.8%	$39.14 billion	14.44%	$159.04 billion	17.90%
EPS	$4.72	58.3%	$4.87	10.93%	$20.23	38.43%
Family Daily Active People	3.26 billion	6.2%
Ad revenue	$37.51 billion	19.1%
Revenue- Reality Labs	$371 million	34.4%
Reality Labs operating loss	$4.55 billion	21.7%
Total expenses
Capex	$9.5 billion	50%			$38 billion	35.2%

Earnings revisions at Seeking Alpha

Key Items	Q2 2024		2024
	Up revisions	Down revisions	Up revisions	Down revisions
Revenue	16	23	30	25
EPS	11	17	23	18

Analysts opinions and insights

Meta Q2 results to top expectations

• Buy, $565->$575: Bernstein analysts said Meta's revenue growth expectations have reset since Q1. Investors now expect its revenue to come in towards the top end of their guidance.
• Buy, $540->$565: Jefferies expects Meta to report Q2 results that exceeds the mid-point of its guidance.
• Buy, $480: JP Morgan is positive on Meta's Q2 results. Analyst Douglas Anmuth notes that the operational trends are positive but expectations are high.

China advertisers continue to spend

• Buy, $500->$525: Oppenheimer said China advertisers continue to spend. They noted that U.S import volumes and shipping prices from East Asia to the U.S are indicating strong demand for China products signaling China advertiser tailwind continues.

The advertising market remains robust

• Buy, $593->$625: Wells Fargo analysts said their checks indicate robust ads performance in Q2. - Wells Fargo cited Revealbot data that indicates Meta's CPM rose 19% y/y in Q2 2024.

• Buy, $475->$540: Keybanc said Meta has seen a meaningful uptick in ad prices quarter-to-date.
• Buy, $550: Citi said their Reels tracking and ad checks indicate a strengthening digital ad environment. It believes Meta Platforms is gaining share of ad spend. It pointed out that Reels ad loads expanded by 160 basis points to just under 22% quarter-to-date.
• Buy, $480->$570: Wedbush said their recent digital ad survey suggests continued strong advertiser demand through Q2.

Steady user engagement

• According to TD Cowen Q2 survey, Facebook users spent an average of 45 mins/per day (flat QoQ) while Instagram users spent ana average of 39 minutes, up from 38 minutes last year same quarter. Engagement among young users (18-24) grew significantly, with Instagram users increasing time spent by 8 minutes to 54 minutes per day.

Unexpected slowdown in Q3 earnings is one of the risks facing Meta

• Bofa thinks that some of the risks facing Meta include unexpected slowdown in Q3, potential reduced Reels revenue growth, cautious commentary on EU regulatory issues, and probably higher capex/significant depreciation expense in 2025. Bofa expects Q3 revenue guidance of $37.5-$40.5 billion. He expects 2024 expenses and capex to stay unchanged at $96-$99 billion and $35-$40 billion, respectively.

Competitor expectations and results

Alphabet

Analysts estimates

Key Items	Q2 2024	Y/Y
Revenue	$84.35 billion	13.1%
Advertising revenue	$64.5 billion	11.0%
EPS	$1.85	28.5%

Earnings revisions at Seeking Alpha

Key Items	Q2 2024
	Up revisions	Down Revisions
Revenue	29	1
EPS	34	0