Meta's Quarterly Report: What Does It Mean for Investors?

Meta's Third Quarter Earnings Report is Coming

Meta Platforms Inc. (META) is preparing to announce its third quarter earnings after the close on Wednesday. The company has stated that it will spend $72 billion to develop its artificial intelligence (AI) infrastructure by 2025, an increase from the initially estimated $65 billion.

So far, $14.3 billion has been invested in Scale AI, and its CEO was appointed as the Chief AI Officer. Additionally, at least $1.5 billion has been invested in a new data center in El Paso, Texas. The company signed a $27 billion financing agreement for the Hyperion data center in Louisiana and spent millions of dollars to attract AI experts from competing tech firms.

On the other hand, the layoff of 600 employees from the company's AI department continues the trend of large tech firms in Silicon Valley reducing their workforce.

For the third quarter, Meta is expected to report earnings of $6.72 per share and $49.6 billion in revenue. These figures represent a significant increase from $6.03 earnings per share and $40.6 billion revenue reported in the same quarter last year.

The competitive advertising revenue is expected to be $48.6 billion, which means a 21% increase compared to the third quarter of last year.

Unlike cloud providers such as Amazon (AMZN), Google (GOOG, GOOGL), and Microsoft (MSFT), Meta does not aim to sell AI services to businesses. Instead, the company uses this technology to enhance its advertising business and increase user engagement.

CEO Mark Zuckerberg noted during the earnings call for the second quarter in July that this effort is starting to pay off. “The strong performance in the competitive advertising space stems from AI delivering greater efficiency and gains in our advertising system,” he said.

There is also pressure on Meta's AI to deliver positive results in the third quarter, especially with the expectation that Google will announce its financial results on the same day, a significant factor for investors.

Justin Post from investment bank BofA Global Research stated regarding this, “Reports of additional AI hiring and potential AI infrastructure deals will be critical for updating Meta's AI outlook.”

Meta's shares have gained 25% this year and 30% over the last 12 months. However, this rate lags behind Google's 33% annual increase and 55% increase over the last 12 months.

The company continues to use AI in its hardware products, including Ray-Ban Meta smart glasses, Quest 3 headsets, and the newly announced Meta Ray-Ban Display glasses. However, Olivier Blanchard, research director at Futurum, notes that there is no clear roadmap on how Meta's hardware will ultimately benefit consumers.

In conclusion, Meta Platforms' advertising business appears to have been quite strong recently, and good results are expected this quarter.