Meta Platforms (META) Q3 2024 Earnings Review

Social media giant Meta released its Q3 2024 earnings after market close on October 30, delivering solid results that beat market expectations on revenue and profits. Meta raised its capital expenditure outlook, citing continued heavy infrastructure requirements for AI initiatives. The stock traded down approximately 3% in pre-market trading.

Meta Platforms (META) Q3 2024 Financial Results

• Revenues: $40.59B (YoY +19%)
  • Family of Apps (FoA) Revenues: $40.32B (YoY +19%)
  • Reality Labs (RL) Revenues: $270M (YoY +29%)
• EPS: $6.03 (YoY +37%)

Since Q4 2021, Meta has been structured into two main segments:

1. Family of Apps (FoA): Including Facebook, Instagram, Messenger, WhatsApp, and other services
2. Reality Labs (RL): Focused on AR/VR hardware and software development

Meta emphasizes that while these segments are reported separately, they are strategically unified. The RL division’s vision is to build the next computing platform, optimizing FoA experiences for users.

Segment Performance

The core advertising business within the Family of Apps (FoA) segment generated revenue of $39.89B, up 19% YoY, though growth decelerated from the previous quarter. This slowdown primarily stemmed from ad impression growth of just 7% YoY across Meta’s apps, marking the fifth quarter of decelerating growth. However, average ad pricing increased 10% YoY, accelerating for the fourth quarter, indicating practical monetization improvements from AI implementation.

FoA’s Daily Active People (DAP) reached 3.29B in Q3, up 4.8% YoY but slightly below Wall Street’s expected 3.31 B. Notably, net DAP additions in the past two quarters have fallen below historical averages, with year-over-year growth rates trending downward. While Average Revenue Per Person (ARPP) grew 12% YoY to $12.29, reaching the second-highest level in history, the user growth slowdown warrants monitoring.

Ad impressions grew 7% YoY across all regions, though growth rates generally declined from the previous quarter, aligning with Meta’s earlier warnings about tough comps. The Asia-Pacific region led growth with a 9% increase in ad impressions. The average price per ad rose 11% YoY across all areas, reflecting strong ad demand and improved conversion rates, likely benefiting from AI implementation.

Financial Metrics

Total costs and expenses rose 14% YoY to $23.24B, driven by increased operating and R&D expenses, partially offset by decreased marketing and administrative expenses. With revenue growing faster, all expense ratios except R&D declined year-over-year. Operating income jumped 26% to $17.35B, with operating margin expanding from 40% to 43%, beating analyst expectations of 39.5%. Net income surged 35% to $15.69B, exceeding the consensus estimate of $13.64B.

By segment, FoA’s operating income increased 25% to $21.78B, while RL losses widened from $3.74B to $4.43B year-over-year. Meta expects RL losses to expand significantly this year. Q3 capital expenditures reached $9.2B, up substantially from $6.76B a year ago, primarily for servers, data centers, and network infrastructure. Year-to-date capex totaled $24.4B, exceeding the prior year’s $20.2B.

Meta Platforms (META) Q3 2024 Earnings Call Highlights

• Q3 capex of $9.2B primarily for infrastructure
• Free cash flow of $15.5B
• Metaverse losses are expected to increase in Q4; this remains a strategic priority
• Capital allocation strategy:
  • Long-term operational focus
  • Balanced short and long-term opportunity exploration
  • Maintaining flexibility for market responsiveness

Social Platforms

• WhatsApp maintaining strong U.S. growth momentum
• Facebook is showing positive youth engagement trends in the U.S.
• Threads reaching nearly 275M MAUs
• Meta satisfied with Threads growth across U.S., Taiwan, and Japan
• AI-driven content recommendations boosted Facebook usage by 8% and Instagram by 6%

AI Development

• Zuckerberg sees AI as a catalyst for product evolution; the next phase focused on AI-generated content
• Planning expanded consumer and enterprise AI offerings for 2025
• Llama showing exponential growth; U.S. government adoption; Llama 4 planned for early 2025:
  • Training utilizing 100K+ H100 GPUs
  • Enhanced multimodal capabilities and reasoning
• Meta AI surpassing 500M MAUs
• Internal efficiency gains:
  • Improved coding and content moderation
  • Open-source benefits feeding back into products
• New ranking and recommendation systems:
  • More efficient data utilization
  • Implementation of Facebook video
  • Platform expansion planned

Advertising Business

• Over 1M advertisers using Meta’s generative tools
• 7% conversion rate improvement with AI image generation
• Monetization strategy:
  • Increased ad frequency in under-monetized content
  • New AI models incorporating user behavior sequences
  • Ad pricing growth is driven by demand and effectiveness
• Meta AI advertising integration is not an immediate priority
• Softening ad demand from China

Hardware Products

• Strong Ray-Ban Meta AI glasses sales
• New smart glasses development with EssilorLuxottica
• Meta Quest 3S positioned as holiday season frontrunner

WhatsApp

• Click-to-message ads as primary revenue driver
• Expansion focus in high-penetration markets
• Paid messaging driving other revenue growth

Outlook for Q4 2024

Revenue guidance of $45-48B (midpoint ~$46.5B, +16% YoY), exceeding Wall Street consensus of $46.3B.

Review and Analysis

Meta achieved a 42.7% operating margin (3-year high) despite substantial metaverse investments, driven by:

1. Core advertising business strength
2. Operational efficiency initiatives

While ad revenue growth appears to moderate, Meta’s two-year CAGR indicates a healthy trajectory, reflecting sustained digital advertising market leadership. However, base effects and user growth saturation suggest growth rates may plateau near current levels.

Family of Apps

FoA’s other revenue maintains 30%+ growth. Despite a small base, it indicates emerging revenue streams for future growth.

Two key metrics warrant attention: declining growth in DAP and ad impressions. The 7% ad impression growth particularly signals platform traffic constraints. However, Meta’s pricing mechanism shows market adaptability, accelerating ad pricing for five consecutive quarters amid supply constraints.

Metaverse

Meta’s metaverse investment continues to intensify: quarterly losses are expected to rise from $4.4B to $4.5-5.0B, potentially exceeding $20B in 2025. This reflects strategic positioning in next-gen computing platforms and emerging technologies.

AI

Meta AI’s 500M MAU leverages the company’s social network ecosystem advantages. While potential inflation from accidental triggers exists, Meta’s social platform advantage provides unique AI integration opportunities.

Meta’s next-gen recommendation model employs Llama 3.2-like training methodology: enhancing medium-scale models through large-scale model insights. This technical approach shows theoretical promise and sustained AI investment.

Hardware

Ray-Ban Meta smart glasses performance and future Orion AR glasses plans demonstrate Meta’s next-gen hardware development progress. Smart glasses not only hold standalone market value but expand Meta AI application scenarios, making Meta’s smart glasses developments noteworthy for the next two years.

Conclusion

Meta holds a unique position in the current AI race with three key advantages:

1. Top-tier language model development capabilities
2. World’s most extensive social network user base
3. Established monetization mechanisms

These elements create a strategic positive feedback loop, strengthening Meta’s AI competitiveness.

While the core business maintains stable growth, it faces market saturation challenges. Meta’s next growth phase depends on AI initiatives and metaverse development, including Llama enterprise licensing, Meta AI commercialization, smart glasses as physical AI touchpoints, and AR glasses as next-gen platforms.

Strengths and Opportunities

1. Expanded AI-related capital expenditure, ensuring future computing capacity
2. AI applications enhancing social platform engagement and ad monetization
3. Advancing ad technology amid healthy market demand
4. Facebook’s renewed North American youth engagement; WhatsApp monetization progress
5. Llama 3.1’s emergence as leading LLM
6. Quest 3 sales outperformance; Quest 3S market expansion potential
7. Upbeat market response to Ray-Ban Meta smart glasses
8. Leadership position in next-gen computing platform with Orion AR glasses

Weaknesses and Threats

1. Core business (social platforms) user growth and ad impression growth deceleration
2. Continued substantial Reality Labs losses
3. Persistent regulatory pressure globally