Meta’s ad billings propel 27% revenue surge

Meta has announced its first quarter earnings for 2024. The parent company of Instagram and Facebook reported a record revenue of $36.5 billion, compared to $28.6 billion in 2023. It's up over 27% from the previous year and surpasses analysts’ projections.

Revenue from its Advantage+ Shopping Campaigns (ACS) has more than doubled since last year. Advertising accounted for 97% of that revenue, amounting to $35.6 billion, with the average price of ads rising by 6%.

Despite a record-breaking revenue, the company's share price plummeted by more than 15% following its earnings report. Cautious sales forecasts and increased spending on artificial intelligence drove the decline.

The company aims to establish itself as the foremost AI service globally, prioritising both quality and usage. To achieve this, the company plans to significantly expand its AI investments before these initiatives translate into revenue. Chief executive Mark Zuckerberg draws from a familiar playbook, mirroring the successful approach for features like News Feed, Stories, and Reels.

The recent introduction of Llama 3, Meta’s cutting-edge large language model, exemplifies the company’s strategic commitment to AI. Integrated into platforms like Instagram and WhatsApp, Llama 3 can instantly generate images and summarise articles, elevating user engagement and content relevance.

However, Meta’s ambitious AI endeavours come at a cost. Following a cost-cutting drive in 2023, which resulted in thousands of job losses, operational expenses have surged, raising investor concerns. As Meta competes in the fierce AI race against major players like Google and OpenAI, achieving a delicate balance between rising costs and revenue growth remains crucial.

Additionally, Meta’s Reality Labs hardware division, focused on virtual and augmented reality, reported increased revenue but continues to operate at a loss. Monetising these innovative ventures remains an ongoing challenge.

Mike Proulx, vice president and research director at Forrester, commented on Meta’s AI commitment: “While Meta is all in on AI, the company must make substantial infrastructure investments to realise its vision. Mark Zuckerberg’s ‘heads up’ echoes his past metaverse ambitions, but AI now offers practical use cases. The question remains: Can Meta compete in the AI race while maintaining financial strength? Expect ‘metaverse’ resources to shift from Reality Labs to Meta’s AI initiatives.”

Proulx added: “With 150 million monthly active users, Threads is well on its way of besting X by becoming the Twitter alternative users and advertisers are longing for. And with Instagram Reels now accounting for 50% of time spent on the app, it will only benefit by increased uncertainty about TikTok’s future.” 

Meta’s revenue projection for the upcoming quarter ranges from $36.5 billion to $39 billion, slightly below market expectations.