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Meta’s heavy artificial intelligence (AI) investment pays off as second-quarter revenue reported strong earnings driven by a surge in advertising yields and user engagement, persuading investors of its commitment.
The company discussed how it surpassed analyst expectations on an earnings call with analysts, along with CEO Mark Zuckerberg and finance chief Susan Li.
At $39.07 billion, Meta reported a revenue growth of 22% over the previous year; 98% of sales are mostly derived from advertising on Facebook and Instagram. This marks the company’s fourth consecutive double-digit increase of over 20%.
Alphabet said in its earnings report last week that its growth rate was twice that of Google’s ad business, which saw sales rise 11% to $64.6 billion. Meta’s net income increased by 73% to $13.5 billion, surpassing the consensus estimate of $12.3 billion.
Bouncing Back: Advertisement Sector Surges
Several investors became skeptical of Zuckerberg’s hyperfocus on artificial intelligence development, given its costly infrastructure, training, and maintenance needs, following the rise in popularity of OpenAI’s ChatGPT.
Flash forward to this week, and Zuckerberg is back on Wall Street’s good side. The revenue increase points to how Mark’s investment in improving its recommendation engine and user targeting has enhanced its core advertising business.
“Over the long term, advertisers will basically just be able to tell us a business objective and a budget, and we’re going to go do the rest for them,” 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,” he added. However, monetizing such technology would still take years, according to him.
Li said that most of the advertising gains from this quarter came from the online commerce, gaming, and entertainment sectors. Despite the slowing growth in Asia Pacific, she said the company’s “improved ad performance” contributed to an increase in overall ad prices.
Meta’s rising shares are a twist of fate after suffering a $10 billion loss from advertising after Apple’s policy changes in 2021, which made it hard to track users on mobile.
“They rebuilt their ad tech stack using AI, changed their user interface, and generated a lot more user engagement because of AI,” said Mark Mahaney, internet analyst at Evercore ISI. “You’ve already seen a return with Meta over the last two years.”
The AI Everywhere Strategy
Li is positive that AI will affect almost every product Meta has, improving existing ones and creating new ones.
Zuckerberg also noted a shift in technological development expectations, saying that Smart AI is advancing faster than holographic augmented-reality (AR). He remains enthusiastic about the future of their smart glasses, and despite the demand being bigger than production capacity, Zuckerberg is confident that supply will soon meet consumer needs, thanks to their investment in Reality Labs.
Meta will maintain its current approach to capital expenditures. The company will make significant investments in infrastructure to support its core AI initiatives, including content ranking, ads, generative AI, and research. These investments are driven by the strong returns observed and anticipated and aim to enhance the relevance of recommended content and ads across several of its platforms.
As Meta scales its generative AI training capacity, it will continue to build flexible infrastructure to adapt to evolving needs.
