Meta expenses increase amid AI and smart glasses push
Meta raised guidance on capital expenditure for 2024 and expects expenses to grow in 2025, primarily due to an acceleration in infrastructure investment, as the tech giant looks to invest further in AI and its Reality Labs segment.
In its Q3 earnings on Wednesday, Meta announced total revenue grew 19% year on year to $40.59bn.
The vast majority (98.3%) came from advertising, which rose 18.7% year on year to $39.89bn. Ad impressions across Meta apps increased 7% year on year, while the average price per ad was up 11%.
Net income climbed 35% from a year earlier to $15.69bn.
This occurred even as Meta’s costs and expenses grew 14% year on year to $23.24bn. Capital expenditure alone totalled $9.2bn.
Daily active users across Meta’s portfolio of platforms grew below analyst expectations by 5% to 3.29bn.
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Meta attributed much of the company’s revenue growth to investments in AI paying off by improving efficiencies and effectiveness for advertisers.
Chief financial officer Susan Li noted that the majority of the tech giant’s investments have gone towards the development and operation of its “family of apps” (eg. Facebook, Instagram, WhatsApp and Threads). These expenses totalled $18.5bn (80% of total expenses) — an increase of 13% year on year due to higher infrastructure and headcount-related costs.
However, Li described “continued momentum” with Meta’s AI-led Advantage+ solutions for advertisers, including its new ad creative tools that were released in May.
“We’re seeing strong retention with advertisers using our generative AI-powered image-expansion, background-generation and text-generation tools, and they’re already driving improved performance for advertisers even at this early stage,” she said.
Meta has begun testing new AI video-generation features that it expects to make more broadly available “by early next year”, Li added.
Meta estimates that businesses using its AI image-generation tool have seen a 7% increase in conversions, with CEO Mark Zuckerberg saying the company believes “there’s a lot more upside” to that product.
He also pointed to “great momentum” in Meta’s open-source large language model Llama, which the tech giant hopes will become industry standard.
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Zuckerberg added that Meta AI, the company’s AI assistant, is “on track to be the most-used AI assistant in the world by end of year”, revealing it currently has 500m monthly active users.
“We’re seeing AI have a positive impact on nearly all aspects of our work, from our core business engagement and monetisation to our long-term road maps for new services and computing platforms. We are working with enterprises to make it easier to use,” he said on the earnings call.
Zuckerberg added that Meta is now also working with the public sector “to adopt Llama across the US government”.
This week, Meta launched a competitor to Google’s AI “podcast” generator NotebookLM. It has also been reported that it is developing its own search engine for Meta AI in an attempt to reduce its reliance on Google.
Bets on smart glasses get bigger
Zuckerberg also pointed to AI’s usefulness in creating new products and services, namely Meta’s Ray-Ban smart glasses, of which “AI is going to be a really important ingredient” in developing as a standalone consumer offering.
“I continue to think that glasses are the ideal form factor for AI, because you can let your AI see what you see, hear what you hear and talk to you,” he explained. “Demand for the glasses continues to be very strong.”
The comments echo UK vice-president Derya Matras’ statement earlier this year, when she declared at Advertising Week Europe: “Phones had their time for the last few decades. The next form factor is going to be smart glasses.”
However, Meta’s biggest bets in virtual reality and augmented reality (AR) have yet to pay off relative to the high costs associated with their research and development. Its research department in this area, Reality Labs, saw expenses increase 19% year on year to $4.7bn and reported an operating loss of $4.4bn.
Since Meta began reporting Reality Labs as its own segment in Q4 2020, the division has lost $58bn.
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At Meta’s annual Connect event in September, the company unveiled Orion, its first holographic AR smart glasses. The technology on display may have been impressive, but the product is not yet for sale as it is currently too costly to scale and sell to consumers.
Uncertainties also remain around convincing consumers that smart glasses are stylish, useful and unobtrusive. While Meta’s Ray-Ban partnership has succeeded in creating niche demand, the company still appears several years away from shipping a more powerful Orion product.
Still, Meta leadership has remained steadfast in its commitment to Reality Labs. Responding to an analyst query on Meta’s earnings call, Li said: “I’d say Reality Labs is clearly one of our strategic long-term priorities and we expect it will be an area of significant investment — as we build out toward the very ambitious product road map that we have there.”
Threads monetisation pushed back
One new investment that has received buzz in media circles is Threads, Instagram’s microblogging platform launched to take advantage of controversy at X.
On the earnings call, Zuckerberg revealed Threads now has nearly 275m monthly active users and is growing at a pace of 1m sign-ups per day.
By comparison, fellow X competitor Bluesky currently counts over 13m users. X owner Elon Musk claims his platform has upwards of 600m monthly active users.
“Engagement is growing, too,” Zuckerberg pointed out. “We continue to be on track toward this becoming our next major social app.”
He added that Threads was seeing strong user growth in key markets including the US, Taiwan and Japan, and the company is continuing to build out its functionality.
However, Zuckerberg does not expect Threads “to be a meaningful driver of 2025 revenue at this time”, suggesting that monetisation efforts through offering advertising on the platform are unlikely to happen next year.
The announcement is significant, given prior reports that had suggested Meta was considering and testing adding ads to Threads this year.
One app that has successfully integrated an ad model in recent years is WhatsApp. Li said its new click-to-message ad format has seen “continued traction” with advertisers, as Meta looks to scale it in more markets where WhatsApp has strong user adoption, such as Brazil.
“It’s obviously earlier in the US, but we’re seeing good growth in click-to-WhatsApp ads and are continuing to invest in scaling and consumer adoption of WhatsApp in the US also, which will create bigger opportunities down the line,” she noted.
WhatsApp’s main revenue driver, however, is paid messaging, which grew strongly at 48% in Q3 — it’s the “primary” driver of growth within Meta’s family of apps’ “other” revenue line.