What Should Investors Watch Out For in Meta’s Q3 2024 Results?

TradingKey - For investors in the Big Tech stocks, the next week or so will see a slew of earnings results from many of the megacap tech stocks. Also known as the “Magnificent Seven”, the results of these giants tends to be a barometer for where the broader stock market in the US is headed.

One such important company – Meta Platforms Inc (NASDAQ: META) – is reporting its results for Q3 2024 on Wednesday (30 October) after the market closes. 

The company has come back strongly from a big share price fall following the unveiling of its spending plans for the “metaverse”. Yet optimism surrounding its AI strategy, along with cost optimisation efforts, has seen Meta’s share price soar over 500% since late 2022.

Meta has also started paying a dividend to shareholders, which it announced earlier this year. However, on Wednesday, investors will be watching a number of growth numbers to see if the company can continue to make progress in its AI initiatives. Here’s what investors should be looking out for.

Key ad performance metrics

Given the bulk of Meta’s revenue comes from advertising on its various platforms (like Facebook and Instagram), investor attention inevitably shifts to daily active people (DAP) on these platforms, as well as ad impressions and average price per ad.

In Meta’s Q2 2024 earnings, the company posted revenue of US$39.07 billion, up 22% year-on-year and clocking its fourth consecutive quarter of over-20% revenue growth. This was impressive as the company’s already formidable ads business continued to take market share gains in the digital ad market.

Ad revenue for Meta rose 22% year-on-year in Q2 2024 and easily outpaced Alphabet Holdings Inc’s (NASDAQ: GOOGL) Google Ads revenue growth of 11% for the same period. 

Watch for margins

One key reason for the strong rebound in Meta’s share price has been its focus on cost-cutting initiatives. This continued in Q2 2024 and since November 2022, Meta has eliminated 21,000 jobs over multiple rounds of layoffs.

That came through in the numbers in Q2 2024 as operating income climbed 58% year-on-year to US$14.9 billion and Meta’s operating margin also climbed substantially – rising to 38% from 29% in Q2 2023.

Capex spend will be monitored

Investors will be watching for further evidence that margins continue to be robust in light of these cost optimisation efforts from Meta. Like other tech giants, investors will also be monitoring Meta’s capital expenditure spend as the company ramps up its efforts with AI, including its Llama 3 and (upcoming) Llama 4 open-source AI models.

In Q2 2024, Meta reported capex spend of US$8.47 billion and this came in below the market’s expectations. However, the company did update is full-year 2024 capex spend guidance to a range of US$37 billion to US$40 billion, an increase on the low end from the previous US$35 billion to US$40 billion range. 

Furthermore, CEO Mark Zuckerberg did say in the last earnings call that “we currently expect significant capital expenditures growth in 2025 as we invest to support our AI research and product development efforts”.

Area that the company have been focusing on are building open-source AI models and partnering with other brands – like Ray-Ban – to create products like Ray-Ban Meta AI glasses. Meta has previously guided for Q3 2024 revenue of between US$38.5 billion and US$41.0 billion.

Meta shares have climbed 65.5% so far in 2024, nearly triple the S&P 500 Index’s gain of 22.5% over the same timeframe.