Meta Platforms:Quarterly Results/2024 Q3

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Earnings call summary

Sources: Q3 2024 Meta Platforms Earnings Call Transcript | Q3 2024 Meta Platforms Webcast

Here are the main insights from Meta's third quarter earnings call;

Artificial Intelligence (AI)

• CEO Mark Zuckerberg said improvements to their AI driven feed and video recommendations have driven a 8% increase in time spent on Facebook and 6% in Instagram this year alone.
• Last month, more than a million advertisers used Gen AI tools to create more than 15 million ads, Zuckerberg said.
• Businesses that use image generation tools see a 7% increase in conversion and there is likely to be more upside, Zuckerberg pointed out.
• Li said they are seeing strong retention with advertisers who use generative AI-powered image expansion, background generation, and text generation tools in Advantage+.

• Zuckerberg said they are seeing rapid adoption of Meta AI and Llama, which are becoming industry standards.

• Zuckerberg pointed out that Meta AI now has more than 500 million monthly actives.
• Frequent user cases they are seeing include people using it to gather information on how-to task (the largest user case), to look for content and for image generation (Q&A)

• Zuckerberg said Llama token usage has grown exponentially this year.
• Zuckerberg said he is excited on Llama 4 which is under development. He added that Llama 4 is being trained on a cluster that is bigger than 100,000 H100s or bigger than clusters of competitors.
• Zuckerberg indicated that smaller Llama 4 models will probably be ready early next year and they are going to be a big deal on several areas such as new modalities capabilities, stronger reasoning and much faster.
• Zuckerberg said it has become clear to him that new AI will be incremental to the core business. "It's clear that there are a lot of new opportunities to use new AI advances to accelerate our core business that should have strong ROI over the next few years, so I think we should invest more there."
• Zuckerberg said in the Q&A that they see a broad number of user cases for AI. "I think the main point here is just that it seems broadly applicable to a very wide variety of products. There are areas that are more part of our core business from making feed more relevant and reels more relevant to making ads more relevant, to helping advertisers generate better ads, to helping people create the content that they want, helping our integrity operations and compliance and the work that we do there," he said. "...there's a lot of opportunities that I think will see ramp more over the next year in terms of both consumer and business use cases for people interacting with a wide variety of different AI agents, consumer ones with AI Studio around whether it's different creators or different kind of agents that people create for entertainment. Or on the business side, we do want to continue making progress on this vision of making it so that any small business or any business over time can, with a few clicks, stand up an AI agent that can help do customer service and sell things to all of their customers around the world."
• Li couldn't exactly quantify how they are deploying AI to help with productivity. "On the use of AI and employee productivity, it's certainly something that we're very excited about. I don't know that we have anything particularly quantitative that we're sharing right now. I think there are different efficiency opportunities with AI that we've been focused on in terms of where we can reduce costs over time and generate savings through increasing internal productivity in areas like coding for example, it's early, but we're seeing a lot of adoption internally of our internal assistant and coding agent. And we continue to make Llama more effective at coding, which should also make this use case increasingly valuable to developers over time. There are also places where we hope over time that we'll be able to deploy these tools against a lot of our content moderation efforts to help make the big body of content moderation work that we undertake to help it make it more efficient and effective for us to do so."
• Zuckerberg also said in the Q&A that open source will help them to lower costs since researchers are likely to find ways of doing things more efficiently.
• Zuckerberg said there are opportunities for AI to help people create content (Q&A). So they are going to add a new category such as AI generated or AI summarized content.
• Li said in the Q&A that at the moment they are focusing on consumer experience in Meta AI and not monetization.

Capital expenditures and total expenses

• Zuckerberg said it's clear that their AI infrastructure requires serious investments. He expects to continue investing significantly there.
• Li said that they continue to be flexible in their AI investments so that they can react to market developments. " Within generative AI, we expect significantly scaling up our infrastructure capacity now while also prioritizing its fungibility will similarly position as well to respond to how the technology and market develop in the years ahead."
• Li couldn't comment on the headcount growth in 2025. "So we don't have specifics to share about headcount growth in 2025," she said. She, however, pointed out that they continue to push for efficiency in the company. "We're really focused across the company on our efficiency efforts broadly and making sure that we feel like we're continuing to push the whole company, including areas in which we expect that we will be making additional headcount investments to think about how they can be more efficient in 2025 than they were in 2024."
• Li said in the Q&A that the step up in capex in Q4 compared to Q3 is due to the timing effects and the lumpiness quarter-to-quarter. "The expected step up in Q4 CapEx from Q3 is that part of that comes from increases in server spend and to a lesser extent data center CapEx, but with servers, there are these timing dynamics at play that you referred to because we had these server deliveries that landed late in Q3, and so the cash doesn't go out the door basically till Q4, and that's when you'll see the CapEx show up. And given the nature of capital expenditures generally, there is some actually quite a bit of lumpiness quarter-to-quarter. So it's a little bit hard to sort of extrapolate from any particular quarter. Overall, I'd say we're growing our infrastructure investments significantly this year, and we expect significant growth again in 2025"
• Li said that Reality Labs remains a long-term strategic investment. "Overall, I'd say Reality Labs is clearly one of our strategic long-term priorities and we expect it will be an area of significant investment as we build out towards the very ambitious product roadmap that we have there," she said.

Q3 results and outlook

• CFO Susan Li said that online commerce was the biggest contributor of ad revenue growth in Q3, followed by healthcare and entertainment and media.
• Li said ad revenue growth was strongest in North America and Europe (21%), followed by Rest of World (17%) and Asia Pacific (15%).
• Li pointed out that ad revenue growth decelerated in Asia Pacific from 28% to 15% due to lapping of a stronger demand from China-based advertisers.
• Ad impressions increased 7% while the average price per ad increased 11%.
• Ad impression was mainly driven by Asia Pacific and Rest of World.
• Pricing growth was mainly driven by increased advertiser demand, in part due to improved ad performance but offset by increased impression, particularly from lower monetizing regions and surfaces.
• Daily usage continue to grow Y/Y across Facebook and Instagram, both globally and in the U.S.
• Li said that they are seeing healthy cost per action or cost per conversion trends.
• Li said in the Q&A that they haven't seen any incremental benefits from cyclical events such as Olympics.
• Li pointed out in the Q&A that they expect strong advertising trends in 2025, boosted by performance of its ad recommendation systems. "When we think about the Q4 outlook and when we think about going into next year, we generally expect growth to continue to benefit from the healthy global advertising demand that we've seen. We think that our investments in improving our ads performance will continue to accrue benefits to advertisers. But obviously there's a big range of possible macro backdrops and that's something that we try to reflect in the range of revenue guidance that we give," she said.

Family of Apps

• Mark Zuckerberg said U.S remains the fastest-growing country for WhatsApp.
• Zuckerberg said they continue to see positive trends among young adults on Facebook in U.S.
• Zuckerberg pointed out that global growth remains strong at Instagram.
• Zuckerberg said Threads now has 275 million monthly actives. That it's achieving more than 1 million signups per day. He added that engagement at Threads is growing too.
• In Threads they saw strong user growth in key markets such as US, Taiwan, and Japan (Q&A).
• Li said they don't expect Threads to be a meaningful driver of revenue in 2025 (Q&A).
• Li said they are seeing strong results in Facebook from their global rollout of unified video player in June. Since introducing the new experience and prediction system that powers it, they have seen a 10% increase in time spent on Facebook video player.
• Li pointed out that Reels continue to see good traction.
• Li said they are making ongoing progress with their focus on promoting original content. More than 60% of recommendations now come from original content in U.S.
• Li said there are still opportunities to grow ad supply within lower monetizing surfaces such as video.
• Li pointed out that video engagement in Facebook continue to shift to short form video and this should continue with the translation of video tab to a full screen format. This leads to organic video impressions growing faster than video time on Facebook, which provides further opportunities for serving of ads.
• They launched a targeting model that predicts the action that a person is likely to take after seeing an ad. Since introducing it in the first half of the year, they have seen a 2% to 4% increase in conversions (when tested on selected segments).
• In Q3, they made changes to ads ranking and recommendations system, which should increase ad attributions.
• Li avoided answering the question on whether they are thinking of launching their own search. She said that they partner with Google and Bing to enable Meta AI to use them.
• Li said in the Q&A that they continue to see strong traction with click-to-WhatsApp ads but it's earlier in U.S.
• Li pointed out in the Q&A that paid messaging continues to grow at a strong-pace again. "In fact, the primary driver of growth in our Family of Apps, other revenue line, which was up 48% in Q3, and we're seeing generally a strong increase in the volume of paid conversations driven both by growth in the number of businesses adopting paid messaging, as well as in the conversational volume per business," she said.

Reality Labs

• Zuckerberg said demand for Ray Ban glasses continue to be very strong.
• Zuckerberg pointed out that reviews for the Quest 3S are great so far.

Management expectations and analysts estimates

Management guidance

Key Items	Q3 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	$38.5 billion	12.8%	$39.75 billion	16.4%	$41 billion	20.1%
Total expenses							$96 billion	8.9%	$97.5 billion	10.6%	$99 billion	12.3%
Capital expenditure							$37 billion	31.7%	$38.5 billion	37.0%	$40 billion	42.3%

Analysts estimates

Key Items	Q3 2024	Y/Y	Q4 2024	Y/Y	2024	Y/Y
Revenue	$40.24 billion	17.83%	$46.27 billion	15.36%
EPS	$5.23	19.13%	$6.34	18.95%
Family Daily Active People	3.32 billion	5.7%
Ad revenue	$39.7 billion	18.15%
Revenue- Reality Labs	$312 million	48.57%
Reality Labs operating loss	$-4.7 billion	-25%
Operating margin	39.6%
Capex	$11 billion	62.72%	$12 billion	51.89%

Earnings revisions at Seeking Alpha in the last three months

Key Items	Q3 2024		2024
	Up revisions	Down revisions	Up revisions	Down revisions
Revenue	37	1	55	0
EPS	37	0	53	1

Analysts opinions and insights

Ad spending rebounded further in Q3 and Meta remains the top destination for ad dollars.

• Buy, $600->$650: Raymond James said (October 10) their checks indicate that in Q3 there was an upside growth of 1% to 1.5% in total ad spending with outperformance skewed towards Meta and Google.
• Buy, $570->$650: Truist said there was sustained social ad demand and higher CPM in Q3.
• Buy, $475->$520: BMO said (October 9) their are seeing outsized near-term contributions from political advertising as well as regulatory TikTok uncertainty.
• Overweight: $660->$670: Cantor Fitzgerald said the ad checks were strong in the past few months and the underlying drivers have a long runway. They expect categories such as travel to lift Meta further. However, they see upside expectations as elevated due to recent outperformance. They pointed out that Q4 revenue guidance of $48 billion is needed for the shares to outperform on the print.
• Overweight: $560->$655: Keybanc said their checks indicate ad spend remained strong in Q3.
• Buy, $635->$690: UBS said though there was a slow start in ad spend in Q3, there was a pick up in August and September aided by political advertising. Ad spend also benefitted from brand advertising recovery. "Budget growth accelerates throughout 3Q24: Despite a slower start, ad budgets accelerated in Aug into Sep citing uplift from political, brand advertising recovery, and improved consumer sentiment; and while most verticals ramped through 3Q24, we note particular strength in auto and CPG. Meta/Instagram and Google/YouTube both benefited from political spend and optimization/efficiencies unlock from automation and a greater share of budgets moving through Performance Max and Advantage+."
• Buy, $600->$665: Guggenheim said Meta remains the top destination for ad dollars as seen in Q3.
• Buy, $600->$650: Mizuho said their advertising tracking from major ad platforms indicate that online spending remained resilient in Q3 despite mixed signals from consumer spending.

AI tools are boosting meta platforms ROI

• Buy, $630: Bofa said their checks indicate Meta may benefit from new AI tools and new CRM integration. "Continued ROI improvements driving strong advertiser share gains," BofA said in a note.
• Truist said Meta's AI investments continue to drive better ranking and recommendations for users and advertisers.

Meta to benefit from growing monetization of Reels and Messaging

• BofA expects Meta to continue benefitting from growing monetization of Reels and Messaging.
• UBS said their data checks indicates that Meta is still benefitting from Reels and Advantage+ adoption. "While Click-to-Message, Advantage+, and Reels drove the 2022-2023 recovery, our recent checks suggest that Meta is still seeing budget gains from at least two of these three vectors (Advantage+ adoption, Reels)," analyst Stephen Ju wrote.

Meta to report solid results in Q3 2024

• Buy, $555->$636: Goldman Sachs pointed out (October 14) that channel checks indicate Meta will deliver at -or -above revenue guidance for Q3 2024. It also expects Meta to deliver sustained mid-teens revenue growth throughout 2025.
• Buy, $647->$652: Wells Fargo expects Meta to post a robust quarter and guide for a solid Q4.
• Buy, $590->$663: Stifel pointed out that their checks indicates that Meta's growth accelerated in Q3.
• Buy, $600->$675: TD Cowen expects Meta's Q3 revenue to grow by 19% y/y driven by improving engagement and monetization of video surfaces such as Reels.
• Buy, $600->$675: Jefferies said market surveys made them optimistic that Meta would perform well in Q3. They added that their revenue estimate for 2024 is above the market consensus.
• BofA expects Meta to report Q3 revenue of $40.4 billion and EPS of $5.35, both above the consensus estimates.

Cautious outlook on Q3 earnings

• Buy, $550->$620: Roth MKM said (October 11) their channel checks were mixed. It also pointed out that analysts expectations carry "a minimal margin of error."
• Buy, $475->$520: BMO said (October 9) ad channel checks indicate Meta's 1x revenue growth tailwinds are fading and CPG/leisure verticals are weakening.

There are signs of a pullback from Chinese advertisers

• According to Barclays, Temu has shown signs of weakness in the U.S market. "Our quarterly refresh of Barclaycard data on thousands of Temu spenders points to new buyer activations back at 1Q23 levels, well off the 3Q23 peak," Barclays wrote."The cadence of new US Temu users has nearly halved over the last three quarters and is now back at 1Q23 levels."
• Roth MKM said in October that their checks indicate a pullback from Chinese ecommerce advertisers.
• UBS on the other hand believes that Meta has an"ongoing tailwind to top-line growth from Chinese advertisers targeting customers outside of their home market."
• According to insiders, Shein's revenue growth decelerated to 23% in H1 2024 from 40% last year.

The focus on Q3 earnings will be on Q4 guidance

• Buy, $600->$665: Guggenheim said investor focus will be on Q4 revenue guidance. They are forecasting $47 billion versus consensus estimate of $46.2 billion.
• Overweight: $660->$670: Cantor Fitzgerald pointed out that Q4 revenue guidance of $48 billion is needed for the shares to outperform on the print.

Advertising spend and pricing insights

Revealbot Q3 insights indicate that Meta's CPM is up y/y and q/q

• Revealbot data indicates that Facebook's CPM has grown by around 10% Q/Q to around $11 in Q3. A similar trend can be seen for Instagram.

Source: Revealbot

Competition for fewer consumer dollars is a reason for the uptick in CPM/CPC

• This year has seen a rise in CPC/CPM as advertisers compete for fewer consumer dollars. “The biggest challenge this year is the rising costs in CPCs and CPMs across ad platforms,” said Duane Brown, founder of performance marketing shop Take Some Risk. “Even if you don’t have Temu in your ad auction, everyone is fighting for fewer consumer dollars.”
  

Rockerbox ad spend insights indicate that ad spend will likely increase going into the holiday season and that Meta's return on advertising spend has decline this year

Rockerbox is a marketing measurement solution firm that tracks over $5.9 billion in advertising spend across channels such as Meta Platforms, Google and TikTok. Its recent insights which cover the period July 2023 to July 2024 established the following;

Spend is likely to increase going into the holiday season

• According to Rockerbox’s CEO Ron Jacobson, their projections and that of their customers indicate that spend is likely to increase going into the holiday season.

Large spenders are reallocating the budgets towards higher-performing channels

• Small brands (whose spend ranges from $5 milllion to $15 million) are seeing stable performance while large brands (those with over $35 million) are reallocating their spend towards higher-performing channels (minute 8:00).
• Ad spend on Meta platforms is up 4.32% y/y and 0.52% m/m.
• Ad spend on Google is up 5.18% y/y and 2.05% m/m.
• Ad spend on TikTok is down 3.6% y/y and 2.53% m/m, driven by big spenders (those that spend more than $35 million).

Meta has been a winner in pricing but its return on ad spend has declined

• Meta's return on ad spend (ROAS) has declined 12% compared to July 2023 while its cost per acquisition (CPA) has risen 28%.
• Google's click through ratio (CTR) has declined 19.93%.
• TikTok's CTR has increased by 5%.

Meta's ad algorithm has been blamed for having bugs

• A number of advertisers interviewed by the Morning Brew have blamed Meta's ad algorithm for underdelivering or going outside the budget. They blame these issues on the algorithm changes that Meta is launching.
• However, despite these issue, advertisers believe that Meta's algorithm is still the best.
  

Insights on active users

• Analysis of Meta Platforms daily active users growth by Bofa (based on Sensor Tower data) indicate that Facebook and Instagram DAUs were down in Q3 on a monthly basis. However, on a yearly basis, DAUs were up for both Facebook and Instagram.

Source: Bofa

Competitor earnings estimates

Alphabet

Analysts estimates

Key items	Q3 2023	Y/Y
Revenue	$86.44 billion	12.71%
Adjusted EPS	$1.83	18.06%
Ad revenue	$65.5 billion	9.81%
Cloud revenue	$10.79 billion	28.30%
Capex	$12 billion	48.15%

Snap

Analysts estimates

Key items	Q3 2023	Y/Y
Revenue	$1.35 billion	13.9%
EPS	$0.05	150%
Daily Active Users (DAU)	441.03 million	8.62%
Average revenue per user (ARPU)	$8.55	9.34%