Mark Zuckerberg, chief executive officer of Meta Platforms Inc., during an interview on “The Circuit with Emily Chang” at Meta headquarters in Menlo Park, California, US, on Thursday, July 18, 2024.
Jason Henry | Bloomberg | Getty Images
For investors who are skeptical of Meta’s massive spending on artificial intelligence and whether it will pay off anytime soon, CEO Mark Zuckerberg is urging them to look to the present.
After the company’s better-than-expected second-quarter earnings report on Wednesday, Zuckerberg and finance chief Susan Li rattled off all the ways that AI has helped the company grow faster than the competition in the digital advertising market, Meta’s core business.
“The ways that it’s improving recommendations and helping people find better content, as well as making the advertising experiences more effective, I think there’s a lot of upside there,” Zuckerberg said on the earnings call. “Those are already products that are at scale. The AI work that we’re doing is going to improve that.”
Meta reported revenue growth of 22% from a year earlier to $39.07 billion, with 98% of its sales coming from advertising, primarily on Facebook and Instagram. Its growth rate was double that of Google’s ad business, which saw sales increase 11% to $64.6 billion, Alphabet said in its earnings report last week.
Meanwhile, Pinterest and Spotify, which are both significantly smaller than Meta, reported revenue growth of 21% and 20%, respectively, in their latest reports.
As in previous quarters, Li said Meta’s advertising business benefited from online commerce, gaming and the media and entertainment sectors, and that ad growth continued to be strongest in the Asia-Pacific region. She said the company’s “improved ad performance” helped lift overall ad prices despite slowing growth in that region.
Zuckerberg pointed to AI as the foundation behind Meta’s refreshed online advertising platform, which was battered after Apple introduced an iOS privacy update in 2021 that made it harder for social media companies to target users across the Internet.
“They rebuilt their ad tech stack using AI and they changed their user interface and generated a lot more user engagement because of AI,” said Mark Mahaney, internet analyst at Evercore ISI, in an interview on CNBC’s “Closing Bell: Overtime” on Wednesday. “It’s showing up in the revenue and the profits now,” said Mahaney, who recommends buying Meta shares.
Meta shares popped 7% in extended trading after Wednesday’s earnings report, which included an uplifting forecast for the current quarter.
Like the other mega-cap tech companies, Meta is spending billions of dollars on Nvidia’s graphics processing units (GPUs), which are needed to train AI models and run hefty workloads. Some industry experts have questioned the outlays because so much of the investment is tied to expectations that generative AI — popularized by OpenAI’s ChatGPT — will lead to big revenue gains in the future.