Meta’s Zuckerberg Touts AI Progress but Warns of ‘Serious Infrastructure’

The old saying is you’ve got to spend money to make money.

For Meta, notching a third quarter earnings report with record revenues, the fact remains that the long-term artificial intelligence (AI) roadmap will require as yet undefined billions of dollars of capital investments in the next year and beyond.

The read across might be that margins would feel a pinch, and investors sent the shares 3% lower in after-hours trading on Wednesday (Oct. 30).

The record came in the form of roughly $40.6 billion in sales, up 19% from a year ago.

As for the core businesses: Earnings supplementals noted that total advertising-related revenues came in at $39.9 billion, compared to $33.6 billion last year. Ad impressions delivered 7% growth year over year, where those growth rates had been as high as 21% a year ago, worldwide. The average price per ad was 11%, up slightly from the 10% in the second quarter. The firm reported a daily active user count of about 3.29 billion, up 5%.

CEO Mark Zuckerberg said on the conference call with analysts that pushing ahead with AI will be tied to “serious infrastructure.”  That infrastructure will demand that the company “continue investing significantly” against a backdrop where the executive also said that the firm had not decided on a “final budget” yet. 

2025 looms as a year where Zuckerberg and CFO Susan Li said on the call that 2024 capex will be around $38 billion to $40 billion, tightening the bottom end of the range. The forward guidance of $45 billion to $48 billion for the fourth quarter sales implies roughly 12% to 19% growth from the year ago period.

It must be noted that Meta’s stock has surged by double digits through the past year, and AI has been a focus on earnings calls and presentations.

That narrative continued on Wednesday night: Zuckerberg said that “parts of our long-term vision around AI and the future of computing [are] coming into sharper focus. We estimate that there are now more than 3.2 billion people using at least one of our apps each day, and we’re seeing rapid adoption of Meta AI and Llama, which is quickly becoming a standard across the industry.”  He noted  that Threads has evolved into a community with 275 million monthly active users — growing by more than 1 million signups daily.

“We are making a lot of progress with our AI efforts too, and we’re seeing AI have a positive impact on nearly all aspects of our work — from our core business engagement and monetization to our long-term roadmaps for new services and computing platforms,” Zuckerberg said. Meta AI has more than 500 million monthly active users, he said.

Improvements to AI-driven feed and video recommendations have led to an 8% increase in time spent on Facebook and a 6% increase on Instagram this year alone, said Zuckerberg, who added “more than a million advertisers used our GenAI tools to create more than 15 millions ads in the last month. And we estimate that businesses using image generation are seeing a 7% increase in conversions. … We believe that there’s a lot more upside here.

“Llama token usage has grown exponentially,” he said. The Llama 3 models, he said, represent an “inflection point” in the industry, but Llama 4 is “well into development.”

The company continues to lose money on its Reality Labs segment — home to virtual reality and augmented reality efforts — where revenues of $270 million were higher than $210 million a year ago, but the operating loss increased to $4.4 billion, up from $3.7 billion last year. 

Zuckerberg said on the call that its Ray-Ban glasses have been doing well, and now have a Meta AI integration that helps users with suggestions as they are using the product — which he termed as “the ideal form factor for AI because you can let your AI see what you see, hear what you hear, and talk to you. Demand for the glasses continues to be very strong.”

CFO Li said that within ad revenues, “The online commerce vertical was the largest contributor to year-over-year growth, followed by health care and entertainment and media. … On Instagram, Reels continues to see good traction. And we’re making ongoing progress with our focus on promoting original content, with more than 60% of recommendations now coming from original posts in the U.S.”

Li pointed to the use of advanced models to monetize and enhance marketing performance.

“Similar to organic content ranking, we are finding opportunities to achieve meaningful ads performance gains by adopting new approaches to modeling. For example, we recently deployed new learning and modeling techniques that enable our ad systems to consider the sequence of actions a person takes before and after seeing an ad. Previously, our ad system could only aggregate those actions together, without mapping the sequence.” The company has seen as much as a 2% to 4% increase in conversions based on testing within selected segments, Li said.

“For Reality Labs, we continue to expect 2024 operating losses to increase meaningfully year over year due to our ongoing product development efforts and investments to further scale our ecosystem,” she said.

Zuckerberg emphasized the ways in which AI will be harnessed in the service of everything from daily task management to content creation. “In the next year, our goal around that is going to be to try to make these pretty widespread use cases, even though there’s going to be a multiyear path to getting the kind of the depth of usage and the business results that we want.”

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