Meta's core business is benefitting from AI analyst says

Summary

Meta shares rose after reporting a 22% increase in Q2 revenue, with advertising accounting for 98% of sales. CEO Mark Zuckerberg emphasized AI investments, expecting significant capex growth in 2025. The company's disciplined investment approach and strong core ad business were highlighted. Meta's AI initiatives, like chatbots on Instagram and Facebook, are gaining consumer interest and driving engagement. Additionally, Meta's new language models, Llama, are set to tap into enterprise markets, offering a multi-year growth opportunity.

Takeaways

• 📈 Meta's shares rose after reporting a 22% increase in second quarter revenue compared to the previous year.
• 💰 98% of Meta's sales are attributed to advertising.
• 🤖 The company is heavily investing in AI and anticipates significant growth in capital expenditures (capex) by 2025.
• 🗣️ CEO Mark Zuckerberg emphasized the importance of AI during the earnings call, highlighting its potential to revolutionize multiple aspects of the business.
• 🔍 Meta is focusing on 'fungibility', meaning they are purchasing GPUs with various use cases in mind, indicating a disciplined investment approach.
• 📊 The core advertising business is performing well, growing in the low twenties percentage-wise.
• 🧠 AI is already benefiting Meta's core business, contributing to its growth.
• 🌐 There is consumer interest in AI-driven products like the recommendation engine behind 'Reels', which encourages users to spend more time on the platform.
• 🚀 Meta AI, the chatbot, is opening up new use cases for Meta's platforms, such as trip planning, which was not previously considered.
• 💼 Meta is also looking to enter the enterprise market with new language models like 'Llama', aiming to tap into enterprise budgets.
• 💹 Investors are positive about Meta's disciplined approach to investment and their clear vision for monetization.
• 🔄 Meta is balancing investment in AI with the need to maintain a strong bottom line, a challenge that has proven difficult in the past.

Q & A

What was the percentage increase in Meta's second quarter revenue compared to the previous year?

Meta's second quarter revenue increased by 22% compared to the previous year.

What percentage of Meta's sales is attributed to advertising?

98% of Meta's sales come from advertising.

What does Meta expect regarding its capital expenditure (capex) in 2025?

Meta expects significant growth in capex in 2025.

What does CEO Mark Zuckerberg think about AI and its impact on tech stocks?

CEO Mark Zuckerberg believes AI is super exciting and is going to change many things over multiple time horizons.

What was Josh Beck's biggest takeaway from Meta's latest earnings report?

Josh Beck's biggest takeaway was Meta's disciplined investment philosophy and the positive narrative around capital expenditure.

How is Meta's core ads business performing?

Meta's core ads business is doing well, growing in the low 20s percentage.

What is the role of AI in Meta's core business?

AI is already benefiting Meta's core business by driving more time on the platform and creating a bigger advertising surface.

What new use cases for AI is Meta exploring?

Meta is exploring AI use cases like chatbots on Instagram and Facebook, and planning trips with friends, which are new conversational elements.

How does Meta plan to enter the enterprise market?

Meta plans to enter the enterprise market with its new set of language models called 'llama', aiming to tap into enterprise budgets.

What is the challenge Meta faces in balancing investment with immediate financial impact?

Meta faces the challenge of walking a tight rope between investing in multi-year opportunities and satisfying investors' expectations for immediate returns on investment.

Which other companies, besides Meta, are considered good investments in the digital advertising space?

Besides Meta, Amazon and Reddit are also considered good investments in the digital advertising space.

Outlines

00:00

📈 Meta's Q2 Revenue Surge and AI Focus

The first paragraph discusses Meta's second quarter financial results, highlighting a 22% increase in revenue year-over-year, with advertising accounting for 98% of sales. The company's ongoing AI investments are emphasized, with CEO Mark Zuckerberg explaining the significance of AI during earnings calls. The narrative has shifted positively from 90 days prior, with Meta now focusing on 'fungibility'—efficient use of resources like GPUs from Nvidia for various applications. The core ads business is thriving, growing in the low 20s percentage, indicating AI's positive impact. The conversation also touches on Meta's AI-powered chatbot, 'Meta AI', enhancing user engagement and exploring new use cases like trip planning. Additionally, there's a growing interest in Meta's enterprise potential with its new language models, 'Llama', which could tap into enterprise budgets.

05:01

💼 Balancing Act: Meta's Investment and Monetization Strategy

The second paragraph delves into the challenges tech companies, including Meta, face in balancing investment in new technologies with immediate financial performance. Investors are willing to accept increased capital expenditure (capex) as long as companies can clearly articulate their monetization plans. Meta has reassured investors by being prescriptive about its capex, showing a disciplined investment approach. The company's message is positive, indicating a good balance and a strong position for the next year. The discussion also includes other tech companies needing to clarify their monetization strategies. Meta is considered a strong investment in the digital ad market, gaining share and exploring new opportunities in enterprise services. Other companies like Amazon and Reddit are also noted as promising investments in the digital advertising space.

Keywords

💡Meta

Meta refers to Meta Platforms, Inc., the parent company of Facebook, Instagram, and WhatsApp. The company is a key player in the social media and digital advertising space. In the transcript, Meta's Q2 revenue increase and its focus on AI investments are discussed, highlighting its strategic direction and growth potential.

💡Revenue

Revenue is the income generated from the sale of goods or services. In the context of the video, Meta's second-quarter revenue rose by 22% year-over-year, indicating the company's financial growth and market performance.

💡Advertising

Advertising refers to the various forms of communication intended to promote products, services, or ideas. The transcript mentions that 98% of Meta's sales come from advertising, emphasizing its core business model and primary source of income.

💡AI Investments

AI Investments refer to the financial resources allocated to develop or acquire artificial intelligence technologies. Meta is highlighted as continuing to invest significantly in AI, which is expected to drive 'significant growth' in capital expenditure (capex) in 2025.

💡Capex

Capex stands for capital expenditure, which is the money a company spends to buy, maintain, or improve its assets. The transcript discusses Meta's expectation of significant growth in capex in 2025, suggesting a strategic commitment to long-term investments.

💡CEO Mark Zuckerberg

Mark Zuckerberg is the CEO of Meta. In the transcript, his comments on the importance of AI in transforming various aspects of technology are mentioned, reflecting the company's leadership perspective on industry trends.

💡Tech Stocks

Tech stocks are shares of companies that deal with technology-related products and services. The transcript discusses how tech stocks, including Meta, are focusing on AI, indicating a broader industry trend towards technology innovation.

💡Fungibility

Fungibility refers to the interchangeability of goods or assets. In the transcript, the term is used to describe Meta's strategy of buying GPUs from Nvidia for various use cases, showcasing a disciplined approach to investment.

💡Digital Advertising

Digital advertising involves promoting products or services through digital channels like social media, search engines, and websites. The transcript discusses Meta's strong position in the digital ad market, emphasizing its competitive advantage.

💡Enterprise

Enterprise refers to a business organization or a large-scale business activity. In the transcript, Meta's new language models, 'llama', are mentioned as a way to open doors to enterprise budgets, indicating a strategic move into B2B markets.

💡Monetization

Monetization is the process of converting potential opportunities into actual revenue. The transcript discusses how investors expect tech companies, like Meta, to be prescriptive about where they see monetization opportunities from their AI investments.

Highlights

Meta shares moved higher after Q2 revenue increased by 22% year-over-year.

98% of Meta's sales are from advertising.

Meta continues to emphasize its AI investments.

CEO Mark Zuckerberg discusses the importance of AI in tech stocks.

Meta expects significant growth in capital expenditures (capex) in 2025.

Zuckerberg explains why tech CEOs are focusing on AI.

Meta's disciplined investment philosophy in AI is seen as positive.

Meta's core ads business is growing in the low 20s percentage.

AI is already benefiting Meta's core business.

Consumer interest in AI is high, especially in products like Reels.

Meta AI chatbot is being used on Instagram and Facebook, and has a standalone product.

Meta is ambitious to be a leader in AI.

Early consumer feedback on Meta's AI use-cases is very positive.

Meta is opening doors to Enterprise budgets with its new language models, llama.

Investors may not fully appreciate Meta's potential in the Enterprise market.

Meta is balancing investment with the need for immediate financial impact.

Meta needs to be prescriptive about where it sees monetization in its business.

Meta is in a good spot for the next year regarding investment and monetization.

Meta is a strong buy for investors in the digital ad market.

Meta is gaining share in the digital ad market and has emerging opportunities in Enterprise.

Amazon and Reddit are also preferred plays in the advertising space.

Transcripts

let's talk a little bit more about meta

because shares moving higher after its

second quarter Revenue Rose 22% from a

year ago 98% of those sales coming from

advertising the tech giant also

continuing to tout its AI Investments

saying that it expects quote significant

growth in capex in 2025 CEO Mark

Zuckerberg commented on why tech stocks

are focusing so much on AI on the

earnings

calls they're all the jokes about how

all the the tech CEOs get on these

earnings calls and talk about AI the

whole time it's because it's actually

super exciting and it's going to change

all these different things over multiple

time Horizons Josh Beck he joins us now

he's a managing director at Raymond

James Josh it's great to see you here so

obviously the street very excited by

what they heard from Zuckerberg last

night what they saw in this latest uh

earning Sprint what was your biggest

takeaway from this and what this signals

about meta's placement here within the

AI

trade yeah well well thank you so much

uh you know for having me on big change

uh from 90 days ago remember uh meta

actually traded off there were I think a

lot of concerns on the amount of spend

particularly CeX dollars and their

ability to monetize uh that CeX this

quarter much more positive n narrative

um I think they were very prescriptive

you know about this idea of fungibility

so not probably exactly something you

expect to hear on H every Tech earnings

but it's basically the idea that they're

buying a lot of gpus from Nvidia which

you mentioned earlier but they have a

lot of different use cases lined up so I

think more of this kind of disciplined

uh investment philosophy was really a

positive takeaway and on top of it the

core ads business is just doing really

well uh it's growing the low 20s

percentage and it shows you that already

in their Core Business they're

benefiting from AI so it was really a

quite a change from 90 days ago

certainly uh viewed positively by by

investors do do you think consumers are

fully grasping and users of these

services are fully grasping the use

cases for AI and how much more do you

think meta can extract from those AI use

cases that really contributes through to

the average revenue that they're seeing

per

user yeah I I think I think there's a

lot of consumer interest there's a

couple of different um l there I think

at the moment what you're seeing is

product like reals um and the

recommendation engine behind that is

just is is driving users to spend more

time on the platform which obviously

creates a bigger advertising surface so

that that's definitely uh in play the

newer element uh is certainly meta AI so

this is a chatbot uh they're using

Instagram and Facebook to distribute it

they also have a standalone product but

there's starting to be kind of a new

conversation

on meta that you would have never really

considered before so hey meta can you

help me plan this trip with my friends

not something you really would have ever

um considered on your time on Instagram

or Facebook but it is completely net new

so it's it's driving more time um it's

helping their users kind of find a new

uh use case on meta and uh you know

they're ambitious they want to be one of

the leaders there and uh you know

certainly they're tracking well so I

think the early consumer feedback is

very good and I I would also just make

this other point it's not just consumer

uh so one of the areas we're really

constructive on is Enterprise this has

been a market that's not really been a

focus for meta really at all but now

with their new set of language models

llama uh they're opening a new door into

Enterprise budgets and we're really

constructive there I think investors

probably don't quite give them credit

for it at the moment but that's another

kind of multi-year driver that it's a

little bit underappreciated about the

story Josh when we talk about The

Balancing Act here between investment

and then the want and need at least from

the streets perspective from analyst

perspective for that immediate impact to

their bottom line to their financials

are are they doing a good job balancing

that because it is something that has

proven to be challenging to meta in the

past and it's also proving to be an

issue and challenging here for some of

its uh larger cap uh Tech in uh Tech

peers as well

yeah look you're spot on this is

probably the biggest challenge uh facing

the the tech industry and particularly

the large platforms is they see a a a

multi-year opportunity that's completely

changing um the tech stack from the way

the consumer behaves to the way the

Enterprise apps are built so it's a

massive change and these companies have

to have to walk uh pretty tight rope and

I think what investors are holding them

to is okay you can take your capex up

you can invest but you need to be pretty

prescriptive about where you see the

monetization um in your business you

don't necessarily have to give um

investors a number in terms of gen

Revenue every quarter but you have to

give them a pretty strong sense of where

you see the returns and how you're

managing that Capital so for example if

doesn't pan out um that you can shift

those resources elsewhere and still get

a good return and and that was one of

the real messages um from meta last

night that I think was most positive I

think you know some of the other tech

companies have a little work to do to to

spell out their monetization story and

how they're thinking about um investment

but yeah for meta I think today and and

kind of into the next year they're in a

really good spot just lastly Josh while

we have you for investors this morning

trying to kind of Wade through the

digital advertising thesis or theme

within their own portfolio is meta the

best game in town when it comes to

digital

advertising uh certainly it's a strong

buy uh for us uh the digital ad Market I

think is is quite healthy right now uh

that was certainly a investor concern

coming in there were certainly some

signs of of weakness in certain

verticals like food and beverage but

overall retail uh ended up very strong

that's probably the most important

vertical um so yes you I think meta a

really good uh investment because not

only are they gaining share in the

digital ad Market but they have these

other emerging uh opportunities and

Enterprise we also like Amazon we think

they're doing really well in the

advertising space and also benefiting uh

from geni on the Enterprise side with

AWS so those are some of our

uh preferred plays Reddit is another one

that we like that we think is doing

really well interesting Josh Beck

Raymond James managing director here

Josh great to grab some time with you

here this morning ahead of the opening

bell and after these results and the

call from meta appreciate

it thanks so much certainly