Meta | Q3-24 Earning & Call
Still strong, very strong.
If you do not know Meta and what they do, you’ll find everything here.
Overview.
EPS. $5.25 | $6.03 | +14.86% beat
Revenues. $40.29B | $40.59B | +0.74% beat
$8.86B of buybacks & $1.26B of dividends.
"We had a good quarter driven by AI progress across our apps and business. We also have strong momentum with Meta AI, Llama adoption, and AI-powered glasses."
Everything is green & stable although some could notice a small slowdown in growth but comparison is getting harder & harder after so many excellent quarters… We'll talk about it.
Business.
Susan gave the perfect introduction to Meta's business during the call so I'll use her words: “deliver engaging experiences for our community and our effectiveness at monetizing that engagement over time.“
In term of users… I honestly wonder where they always find more to be honest.
They added 200M users QoQ.
Delivering engaging experience means keeping their users glued to their app, which they do very well through different means, starting by recomendation optimizations.
“Meta AI now has more than 500 million monthly active improvements to our AI driven feed and video recommendations have led to an 8% increase in time spent on Facebook and a 6% increase on Instagram this year alone.“
Their apps' global time spent on is growing all over the world. But they want to go further and be self-sufficient. As of today, Llama is using Bing & Google for its users' queries but Meta is working on creating its own web browser - although the question about it was ignored by management... So no news.
Creating a good environment to keep & attract users has always been priority number one, that is where Meta stands for Threads or some of its AI tools for now.
“I would say we are really focused on the consumer experience above all, and it's just sort of a playbook for us with products that we put out in the world where we really dial in the consumer experience before we focus on what the monetization could look like.“
Its second priority is to provide better advertising tools to always target more precisely their users attention & wish.
“More than a million advertisers used our Gen AI tools to create more than 15 million ads in the last month and we estimate that businesses using image generation are seeing a 7% increase in conversions and we believe that there's a lot more upside here.”
Those tools are indeed getting better & better and advertisers cannot have enough of them.
“We're seeing strong retention with advertisers using our generative AI-powered image expansion, background generation, and text generation tools, and they're already driving improved performance for advertisers even at this early stage.”
It shows in the data with contantly growing impression.
Although growth is declining… It's hard to say if this is an issue as even a slower growth means a growth, hence a better product and demand doesn't slow while average ads price continues to grow, reaching the second highest ARPP of the company's history this quarter, combined with the more monthly users… Ever.
Before turning to the hardware, Whatsapp is also behaving well since Meta started monetizing it, in some regions at least.
“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.“
A proof of Meta's capacity to create an attractive product, answer to a strong demand and only then monetize it. The process takes years.
With its other business, starting with the Meta Smart Glasses which are, as we saw already, very demanded and being upgraded regularly.
“They're great-looking glasses that let you take photos and videos, listen to music, and take calls, but what makes them really special is the Meta AI integration. With our new updates, it'll be able to not only answer your questions throughout the day, but also help you remember things, give you suggestions as you're doing things using real-time multimodal AI, and even translate other languages right in your ear for you. I continue to think that glasses are the ideal form factor for AI because you can let your AI see what you see, hear what you hear, and talk to you.“
Meta deepened its partnership with Essilor Luxottica to produce more. The holiday season will also give us a good idea of the demand for Quest 3.
A rapid word internally. exactly like for Google, Meta is using its AI tools internally to boost productivity, mostly on their development teams and plan to use it for content moderation - however controversial that is.
Revenues.
Meta has been doing wonderfully this last year so there's nothing abnormal with great financials.
Healthy double-digit revenue growth, stable gross margin and expanding net margin which means a more optimized company with a stable business. Adding to it a $42.1B net debt & $15.5B of Free Cash Flow, strong returns to shareholders which increase EPS & FCF per share… Are you not entertained?
We have to talk about Capital Expenditure and when will those yield returns - after spending $9.2B more this quarter. I would argue it already yield returns but as the company continue to grow it, the question remains.
“And second, our AI investments continue to require serious infrastructure, and I expect to continue investing significantly there too. We haven't decided on a final budget yet, but those are some of the directional trends that I'm seeing.”
&
“We continue to expect significant capital expenditure growth in 2025.”
Same goes for Reality Labs which lost more than $4B this quarter for a declining revenue YoY & QoQ, to which management doesn’t give guidance individually but will continue to be prioritized as they believe this is where value lies long term.
“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.”
My Take.
Another strong quarter for Meta bringing exactly what we could expect from them: a very strong business & execution, heavy investment and concrete technical news be it software or hardware.
The market won't be happy about those expenses & Capex, as usual, until it yields results and Meta proves (again) they can do it. I think not trusting this management is a mistake by now but everyone has different opinions.
We could also discuss a the slower growth in terms of both ad impressions & price per ad, but we also gotta take into consideration that those grew very rapidly during the year and the comparisons are getting harder & harder. Still growing is already an achievement.
I'm still impressed and would simply hold. Nothing would change in my valuation & buying target.