Meta's core business is benefitting from AI analyst says
Summary
TLDRMeta 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
📈 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.
💼 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.
Mindmap
Keywords
💡Meta
💡Revenue
💡Advertising
💡AI Investments
💡Capex
💡CEO Mark Zuckerberg
💡Tech Stocks
💡Fungibility
💡Digital Advertising
💡Enterprise
💡Monetization
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
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