You type what interests you into a Google search box, and Google makes an advertising profit. But Meta Platforms (META) does it differently.
“They have to infer your interest, which is substantially harder to do, and Meta does that very well,” MNTN chief executive Mark Douglas told TheStreet after Meta’s Q2 earnings. MNTN is an advertising software maker based in Austin.
“The fact that Meta’s revenue doesn’t include branded search effectively makes them almost equal in size to Google, without the benefit of telling them what you want,” Douglas said.
What Meta’s AI can do is not limited to boosting ad sales.
Nvidia’s Jensen Huang spoke with Meta CEO Mark Zuckerberg on July 28 at SIGGRAPH 2024 and recognized Meta as a leader in AI, “even if only some have noticed until recently,” an Nvidia blogger said.
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Meta rolled out its AI Studio on July 29, allowing users to create AI characters that help people find interests, get information, or do more. Chef Marc Murphy created a character named Eat Like You Live There!, offering travelers personalized tips for local dining customs.
“Every single restaurant, every single website will probably, in the future, have these AIs,” Huang commented on Meta’s AI initiative, and Zuckerberg agreed: “Just like every business has an email address and a website and a social media account, I think, in the future, every business is going to have an AI.”
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Meta spending big bucks on AI
Meta reported its second-quarter earnings of $5.16 per share on July 31, surpassing Wall Street’s expectation of $4.73. It generated revenue of $39.07 billion, exceeding the anticipated $38.31 billion. Meta shares added about 7% in extended trading on earnings day, followed by another 4.8% increase the next day.
The tech giant also reported a rosy outlook for the third quarter. Meta projected revenue between $38.5 billion and $41 billion, while analysts forecasted $39.1 billion.
"We had a strong quarter, and Meta AI is on track to be the most used AI assistant in the world by the end of the year," said Zuckerberg, "We've released the first frontier-level open source AI model, we continue to see good traction with our Ray-Ban Meta AI glasses, and we're driving good growth across our apps."
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Advertising sales remain the company's primary business. Advertising revenue, primarily driven by the Facebook and Instagram apps, increased by 21.6% from a year earlier.
While Meta keeps its guidance on full-year 2024 capital expenditures flat, it expects a “significant capital expenditures growth” in 2025 as it invests in AI research and product development efforts.
Meta is planning on AI advertising dollars. “We’re leveraging AI to provide increased automation for advertisers,” said CFO Susan Li during the earnings call.
"Let’s be clear that it’s a ways off, if ever, before CMOs will simply hand over the keys to an AI agent that will autonomously generate ad creative on their behalf," Forrester research director Mike Proulx commented following Meta's earnings, according to Yahoo Finance. "Meta cannot lose sight of the responsibility and importance of the human touch in the advertising process,” Proulx said.
Meta analysts raise price targets for two reasons
At least 24 analysts have increased their price targets after Meta’s second-quarter earnings announcement.
Investors are impressed by Meta’s ad sales. Barclays raised Meta's price target to $550 from $520 and kept an Overweight rating. The analyst described Meta in a note as “the best pace of any company in digital advertising, with little revenue deceleration despite facing very tough comps in the second half of 2024.”
Argus analyst Joseph Bonner raised the price target on Meta to $600 from $550 and kept a Buy rating. “Meta is benefiting from a reacceleration in advertising revenue, significant margin expansion as the result of deep cost cuts, and robust cash flow,” the analyst wrote in a note.
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More analysts saw Meta’s potential in AI development.
Oppenheimer analyst Jason Helfstein said the long-term benefits from Meta’s AI content recommendation, ad targeting, business messaging, and ads generation will “become more exciting to investors over time”. He raised Meta’s price target to $615 from $525 while keeping an Outperform rating.
KeyBanc also raised Meta's stock price target to $560 from $540 and kept an Overweight rating. The firm expects AI-driven efficiencies for merchants to boost market share and sustain annual advertising revenue growth of over 10% for Meta.
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