Meta Q3 2024 earnings call: AI and video enhancements drive growth

Meta delivered a strong performance in Q3 2024, driven by its strategic emphasis on enhancing user experiences, monetizing engagement, and leveraging AI to fuel innovation. These initiatives have strengthened its competitive position and set the stage for sustained growth.

Revenue increased 18.9% year-on-year to US$40.6 billion in Q3 2024 or 20% in terms of constant currency. Revenue in the coming quarter is expected to range between US$45 billion and US$48 billion, assuming no impact from the foreign exchange rates. Operating income margin expanded from 40.3% in Q3 2023 to 42.7% in Q3 2024. Meta spent US$8.9 billion buying back its shares in Q3 2024. As a result, the company’s earnings per share grew by 37.4% year-over-year in Q3 2024, outpacing the year-over-year growth in net income during the same period.

AI has been instrumental in enhancing user experiences and driving monetisation for Meta. AI-powered recommendations have led to an 8% and a 6% increase in time spent on Facebook and Instagram respectively in 2024. Over a million advertisers have utilised Meta’s GenAI tools to create over 15 million ads in September 2024.

Meta AI, now available in more countries and languages, has surpassed 500 million monthly active users, particularly in India. Powered by the multi-modal foundation model Llama 3.2, Meta AI can process text, voice, and photos. While it currently leverages Google and Bing search results, Meta is reportedly developing its own search engine to reduce reliance on external providers.

Llama has experienced significant growth and adoption across industries, including the U.S. government. Meta continues to innovate with Llama, releasing advanced versions like Llama 3.2 in Q3 2024 and the upcoming Llama 4 in 2025.

CEO Mark Zuckerberg is a strong advocate of open-source models, believing they are affordable, flexible, reliable, powerful, and user-friendly. He expressed confidence in the potential of Llama 4 to empower Meta’s businesses, including AI Studio, but refrained from sharing specific details.

Meta expects to invest between US$38 billion and US$40 billion in capital expenditures in 2024, with further growth anticipated in 2025. Servers will be the primary areas of investment, followed by data centres and network infrastructure. A significant portion of this expenditure is expected to occur in Q4 2024 due to increased server and data centre investments and deferred payments from Q3. To optimise resource utilisation, Meta maintains a five-year lifecycle for its servers and networking equipment.

Family of Apps

According to Zuckerberg, the number of daily active users across Meta’s Family of Apps grew 5% year-on-year to 3.3 billion in Q3 2024.

98.9% of its Family of Apps revenue came from advertising. The growth in the advertising revenue was driven by the online commerce vertical, followed by healthcare and entertainment and media.

Growth from the online commerce vertical remained strong but slowed down compared to Q2, mainly due to a tougher comparison with the previous year’s accelerated growth from China-based advertisers.

Ad revenue growth was most pronounced in Rest of World (other than North America, Europe, and APAC) and Europe based on user geography, while North America and Europe led in advertiser geography. These regions boast growing user bases and increased advertiser spending, driving higher revenue.

Facebook continues to appeal to young adult users, particularly in the U.S. while Instagram registered strong growth worldwide. Over two billion WhatsApp calls are made globally every day while the U.S. remains one of its fastest-growing markets. Meta’s youngest app, namely Threads, now has about 275 million monthly active users. The app has attracted more than one million sign-ups daily.

Segmental operating income margin expanded from 51.5% in Q3 2023 to 54.0% in Q3 2024.

Facebook and Instagram

In Q3 2024, there was continued daily usage growth across Facebook and Instagram, both globally and in the U.S. In June 2024, Meta launched a unified video player which led to a 10% increase in time spent on Facebook videos. Meta will launch a new immersive, full-screen video-viewing format in the US and Canada, with a global rollout planned for early 2025.

Instagram Reels continue to thrive, with over 60% of recommendations now coming from original posts in the US, indicating strong organic growth and engagement.

Meta is investing in improving its recommendation systems by developing new, scalable model architectures. The company has already started deploying these models to Facebook video ranking, resulting in increased watch time. This presents an opportunity to serve more ads, contributing to potential revenue growth.

Messengers and WhatsApp

Meta recorded higher business messaging revenue from its WhatsApp Business Platform, primarily from paid messaging in regions like Brazil where the user base is large. The management focuses on monetising click-to-message and click-to-WhatsApp ads.

Asia remains the primary focus region for WhatsApp and Messenger, with India and Singapore leading the way for WhatsApp and the Philippines, Singapore, Malaysia, and the UAE for Messenger. WhatsApp usage is also growing fast and is driving deeper engagement in the U.S.

Threads

CFO Susan Li highlighted that Threads will not be a meaningful revenue contributor in 2025. For now, Meta will continue to focus on user growth and engagement while monetisation will come at a later stage (including Meta AI) like what it did with its other apps. The company introduced several new features during the quarter, including account insights for businesses and creators to track the performance of their posts. More features are planned for future releases. Strong user growth was witnessed from the U.S., Taiwan, and Japan in Q3 2024.

Reality Labs

Revenue from Reality Labs improved 28.6% year-on-year to US$270 million in Q3 2024 because of higher hardware sales. However, its operating loss widened from US$3.7 billion in Q3 2023 to US$4.4 billion in Q3 2024 due to higher headcount-related and infrastructure costs. The full-year operating loss in 2024 is expected to widen as the company spends more on product development and investments.

Meta has been integrating AI into its wearables like Ray-Ban Meta glasses which see strong demand. Zuckerberg remains optimistic about the future of AR glasses as the ideal platform for AI experiences. The company has also launched a new mixed reality headset, Quest 3S and unveiled details of its first full holographic AR glasses, Orion.

Key analyst questions

Meta’s open sourcing of Llama has spurred innovation from the AI community. Researchers and developers are building upon Llama, sharing their improvements, which Meta can then integrate into its products. This collaborative approach accelerates AI advancements and benefits Meta’s AI ecosystem (including cost savings) as well as leads to industrial standardisation according to Zuckerberg. Meta continues to invest significantly in infrastructure to capture the long-term growth opportunities of AI and deliver more engaging products. While this increased spending may impact short-term financial performance, it is crucial for long-term growth and revenue generation. Depreciation and operating expenses are expected to be higher in the coming years.

At the same time, Meta is investing in near-term initiatives related to its core business to deliver continued healthy revenue growth. The company responds to rapid market changes and is flexible with its investments.

Li shared with an analyst that if Meta’s stock price increases between the grant date and the vesting date of its Restricted Stock Units, the GAAP expense will be higher than the tax deduction. This difference can reduce Meta’s overall tax rate.

Li also clarified that non-annual events in 2024 like the Olympics Games and major elections globally did not contribute a lot to Meta’s revenue. Meta’s advertising revenue will continue to grow due to healthy global demand.

Meta experienced a 7% increase in the number of ad impressions and an 11% increase in the average price per ad in Q3 2024. This growth was driven by strong ad performance in regions like Asia-Pacific and Rest of World as well as increased advertiser demand. This increased effectiveness allows Meta to charge higher prices for ad placements as advertisers are willing to pay more for ads that deliver results.

Meta is optimising ad placement within organic content and expanding ad inventory to lower-monetisation surfaces like video, aiming to increase monetisation efficiency. By personalising ad placement and frequency, Meta is enhancing user experience and driving conversions while minimising ad fatigue. The company is also leveraging new modelling techniques to better predict audience responses, leading to a 2-4% increase in conversions. To better align with advertisers’ goals, Meta is improving its ads platform with advanced ranking and optimisation models, as well as AI-powered ad creative tools. By using fewer, more powerful models, Meta aims to improve recommendation relevance, efficiency, consistency, and personalisation across its platforms.

Meta AI is empowering businesses and users alike. For businesses, it offers automated solutions like Advantage+ Shopping and App Campaigns, driving ad performance and lead generation. For users, it enhances content recommendations and enables the creation of high-quality content. Internally, AI is improving productivity and efficiency, while externally, it is empowering developers and aiding in content moderation. By scaling models, expanding datasets, and leveraging advanced hardware like graphics processing units (GPU), Meta is driving innovation and improving user experiences.

The fifth perspective

Meta delivered a solid performance in Q3 2024, driven by strong product momentum and business growth. The company is navigating a complex landscape of technological advancements and regulatory challenges in the EU and the U.S. It has to carefully balance the opportunities presented by AI with increasing regulatory scrutiny. By prioritising user experience, empowering content creators, and providing advertisers with sophisticated AI-powered tools, Meta aims to maintain its position as a leading social media platform.