ii view: Meta results boost confidence in heavy AI spend

Second-quarter results to 30 June

• Revenue up 22% to $39.1 billion
• Net income up 73% to $13.46 billion
• Adjusted earnings per share up 73% to $5.13
• Quarterly dividend payment of $0.50 per share, unchanged from Q1

Guidance:

• Expects third-quarter revenue of between $38.5 billion and $41 billion
• Now expect full-year capital expenditure of $37-40 billion, up from a prior $35-40 billion

Chief Executive Mark Zuckerberg said:

"We had a strong quarter, and Meta AI is on track to be the most used AI assistant in the world by the end of the year." 

"We've released the first frontier-level open source AI model, we continue to see good traction with our Ray-Ban Meta AI glasses, and we're driving good growth across our apps."

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ii round-up:

Founded in 2004 by Mark Zuckerberg, Meta Platforms Inc Class A (NASDAQ:META) today operates social media apps including Facebook and WhatsApp and a Reality Labs business covering Virtual Reality (VR) gaming and metaverse interests. 

Group, or Family Apps, and including Instagram and Messenger, generated 98.6% of revenue in 2023, largely via advertising, with Reality Labs accounting for the balance. 

For a round-up of these latest results announced on 31 July, please click here. 

ii view:

Meta employs just over 70,000 people globally. The number of daily active people on its suite of social media apps hit an average of 3.27 billion in June 2024, up from 2.88 billion in the second quarter of 2022. Geographically, the US generates its biggest chunk of revenue at 37% in 2023, followed by Europe at 23%, Asia-Pacific at 17%, China and the Rest of the World each at just over 10% and Canada the balance of 2%. 

For investors, government concerns globally regarding possible misinformation potentially spread by social media cannot be ignored, and could result in increased regulation. Heightened geopolitics and the start of conflicts such as that in the Middle East, have in the past resulted in at least initial corporate reluctance to advertise. Ongoing investment in Artificial Intelligence (AI) brings no guarantee of future growth, while its Reality Labs business continues to generate losses including a further $4.5 billion this latest quarter.  

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On the upside, Meta is flagging increasing use of its own AI assistant, with capital expenditure including investment in data centres and AI hosting servers now expected to be $37-40 billion compared with $35-40 billion previously. A focus on costs has seen general and administrative expenses fall to 9% of revenue from 13% a year ago. There's also a modest dividend and share buybacks worth $6.3 billion during this latest quarter.

For now, with social media as popular as ever and Meta underlining its intent to spend heavily on development of AI, this tech titan is likely to remain a sector favourite.  

Positives

• Broad base of 10 million plus advertisers
• Cash and cash equivalents held of $58 billion

Negatives

• Uncertain economic outlook
• A series of scandals have previously impacted

The average rating of stock market analysts:

Buy