Meta

Meta's robust stock performance relies on AI-driven digital advertising strategies for future growth

Meta Platforms, also known as Meta (formerly Facebook), reported better-than-expected third-quarter profits and revenue on October 25. The company's strong performance was attributed to its ongoing cost-cutting efforts and a rebound in digital advertising spending ahead of the holiday season. While Meta's owner of social media platforms, including Facebook and Instagram, experienced its highest operating margins in two years and reduced expenses for the year, it provided insights into its future plans.

However, Meta also announced that its 2024 spending is expected to surpass Wall Street estimates. The company is postponing hiring needs from this year to the next and continuing to invest in artificial intelligence (AI) infrastructure. Additionally, Meta indicated that the conflict in Israel and Gaza could potentially impact its fourth-quarter sales.

Meta, which also owns WhatsApp, has been recovering from a challenging 2022 when it faced investor concerns due to significant spending on the metaverse, shared virtual world environments accessible through the internet, amid competitive pressures and a post-pandemic decline in digital advertising.

The company has reduced its workforce by 21,000 employees since the autumn of 2022, particularly in non-engineering roles. Executives at Meta have emphasized a renewed focus on engineering talent as they plan to increase hiring again in the coming year.

Meta's CEO, Mark Zuckerberg, stated that artificial intelligence would be the top investment priority for 2024. The company plans to de-prioritize certain non-AI projects to avoid substantial increases in headcount.

Zuckerberg highlighted that Meta's lean company culture provides stability in navigating a volatile world to pursue long-term initiatives. The company intends to end 2024 with a "meaningfully higher" headcount than its approximately 66,000-person workforce as of the end of September, according to CFO Susan Li.

Meta's operating margin doubled to 40% in the third quarter, and revenue saw its quickest growth in two years. While the total expenses for 2023 were reduced to a range of $87 billion to $89 billion, the company expects 2024 total expenses to be in the range of $94 billion to $99 billion, surpassing earlier estimates.

The company did not provide new explanations for these expenditures but attributed them to higher AI infrastructure investments, hiring plans, and expected losses in its metaverse-oriented Reality Labs unit, as in the previous quarter. Meta has been working to upgrade its data centers to catch up with AI-friendly hardware and software systems. It foresees 2024 capital expenditures in the range of $30 billion to $35 billion, with growth stemming from investments.

Despite these challenges, Meta benefited from increased ad views, which grew by 31% in the third quarter compared to a year earlier. The average price per ad decreased by 6%, but the rate of decline was the slowest in seven quarters.

Meta's forecast for fourth-quarter revenue falls between $36.5 billion and $40 billion, aligning with analyst expectations. Advertisers have shown confidence in Meta's digital platforms in anticipation of a global surge in digital ad spending, poised to reach $667.6 billion the following year.

However, Meta reported a decline in ad spending at the beginning of the fourth quarter, possibly related to the conflict between Israel and Hamas. Susan Li, the company's CFO, mentioned that the impact was factored into the fourth-quarter outlook. Meta also expressed concerns about regulatory pressures, specifically mentioning the U.S. privacy regulator's plan to strengthen a 2019 order to include a ban on profiting from minors' data.