Facebook parent company Meta forecasts upbeat third-quarter revenue after strong quarter

Katie Paul and Yuvraj Malik
| Reuters Agency

Meta Platforms on Wednesday beat market expectations for second-quarter revenue.
The company that owns Facebook and Instagram said it expects third-quarter revenue of $38.5 billion to $41 billion.
Meta is investing billions of dollars in its data centers as it tries to capitalize on the generative AI boom.

Meta Platforms on Wednesday beat market expectations for second-quarter revenue and posted an upbeat sales forecast for the third quarter, a sign that heavy digital ad spending on social media platforms will cover the cost of its AI investments.

The company’s shares rose 4% after the session.

The company that owns Facebook and Instagram expects third-quarter revenue in a range of $38.5 billion to $41 billion, with the midpoint slightly above analyst estimates of $39.1 billion, according to LSEG data.

The company said revenue in the April-June period rose 22% to $39.1 billion, while analysts were expecting $38.3 billion.

“Any investor concerns about Meta’s spending on AI and the metaverse will likely be put to rest by this quarter’s results,” said eMarketer analyst Max Willens.

“Given these strong margins, Meta investors should feel comfortable with the company’s aggressive investment in its future plans,” Willens added.

Shares of social media app Snap, which like Meta relies heavily on digital advertising, rose 3% following Meta’s report.

Even though Meta’s costs rose 7% in the second quarter, revenue growth far outpaced cost growth and led to a 9-basis-point increase in operating margin, from 29% to 38%.

Development of crypto ETFs: How to Invest in Digital Currency Without Buying Coins

Family Daily Active People (DAP), a metric that tracks the number of unique users opening individual apps, also rose 7% year over year to an average of 3.27 billion in June.

Meta’s revenue came after disappointing results from other tech giants, suggesting that the payback from its big investments in artificial intelligence technology may be slower than Wall Street had expected.

Microsoft said Tuesday it would spend more money this fiscal year to build out its artificial intelligence infrastructure, while Google parent Alphabet warned last week that its capital spending would remain high through the end of the year.

Like both of those companies, Meta is investing billions of dollars in its data centers to capitalize on the generative AI boom. Its shares fell in April after it revealed a higher-than-expected spending forecast, quickly wiping $200 billion off its stock market value.

That capped a string of strong quarters for Meta, which rebounded from a stock price collapse in 2022 by cutting jobs and responding to investor enthusiasm for generative artificial intelligence technologies.

Meta has been adding staff over the past year, particularly among AI engineers, while continuing to quietly disband teams elsewhere. On Wednesday, the company said its headcount was down 1% year over year.

The social media giant also signaled it will continue to invest heavily in AI infrastructure, predicting capital expenditures in 2024 will be between $37 billion and $40 billion, an increase of $2 billion from its previous forecast of $35 billion to $40 billion.

The company left its total spending forecast unchanged for the year, leaving it at $96 billion to $99 billion, while warning that infrastructure costs will continue to be a “significant driver” of spending growth in 2025.

Losses at the company’s meta-world unit, Reality Labs, which makes virtual reality headsets, smart glasses and upcoming augmented reality glasses, will also “grow significantly,” the statement said.

Meta is modernizing its ad-buying products, leveraging AI tools and short-form video to drive revenue growth, and is also introducing new AI features like chat assistants to drive engagement on its social media.

Unlike its competitors, Meta has made most of its AI models available for free, hoping that this approach will result in innovative products, less dependence on potential competitors, and greater engagement on major social networks.

The company could also benefit if developers use its free models instead of paid ones, which would undermine rivals’ business models. Developers generally consider Microsoft-backed OpenAI to be the industry leader, but Meta revealed key performance gains with the release of Llama 3 last week that could make its models more attractive.