Meta Platform’s Q3 Earnings: Revenue Soars But User Growth Slips

TradingKey - In the tech world, Meta Platforms Inc (NASDAQ: META) is a giant. The social media giant owns Facebook, Instagram, WhatsApp, and Threads. It also reported its third-quarter 2024 earnings, showcasing impressive revenue growth but a slight dip in user growth. 

However, despite strong revenue numbers, the company saw its stock dip over 3% in after-hours trading due to a miss on user growth metrics, raising questions about whether Meta’s investments in artificial intelligence (AI) can help drive long-term growth.

Over the past few years, Meta has doubled down on ambitious projects like Reality Labs, its AR and VR division responsible for the metaverse, while also building robust AI capabilities. 

These initiatives aim to help Meta diversify its revenue streams but come at a high cost. This quarter, Meta reiterated its commitment to investing in these areas, which has some investors cautiously optimistic but others concerned about rising expenses. Here are the key takeaways for investors from its latest numbers.

Revenue and profit beat expectations

Meta’s Q3 revenue reached US$40.59 billion, surpassing analysts' expectations of US$40.25 billion and representing a 19% year-on-year increase. 

Meta reported a revenue of US$40.59 billion, topping analysts’ expectations. Earnings per share (EPS) came in at US$6.06, exceeding the anticipated US$5.25. This performance reflects strong ad revenue growth, which increased 19% year-on-year to US$39.89 billion, and continued improvements in its core advertising business.

While Meta saw its daily active users (DAUs) increase by 5% year-on-year to 3.29 billion, it missed expectations of 3.31 billion DAUs. This minor miss highlights the challenge Meta faces in maintaining user growth, especially as it continues expanding into new products like Threads and Reality Labs.

AI and advertising drive growth but expenses rise

Meta CEO Mark Zuckerberg emphasised the company’s focus on AI development, which includes models like Meta AI and Llama. AI-powered tools have made ads on platforms like Facebook and Instagram more relevant, helping boost ad pricing by 11% this quarter. 

Meta's strategy also includes open-source AI initiatives, which Zuckerberg believes can enhance cost efficiency over time.

Meanwhile, Meta’s CFO Susan Li indicated that capital expenditures will increase significantly in 2025 to support the expansion of Meta’s AI infrastructure. This will likely impact Meta’s short-term profit margins, though the company expects these investments to pay off in the long run.

Elsewhere, one bright spot was WhatsApp, where paid messaging continues to grow. Meta noted that both the number of businesses using paid messaging and the volume of conversations are rising. The growth in WhatsApp’s business capabilities presents a new (potentially sizeable) revenue stream that Meta plans to expand over time.

What’s next for Meta?

Meta's strategy is focused on leveraging AI to improve user engagement and advertising effectiveness. By continuing to enhance its AI capabilities, Meta hopes to improve the relevance of user feeds and ad recommendations across Facebook, Instagram, and WhatsApp. 

In addition, Meta’s ongoing work on AI-driven products, like the Llama AI models and the Meta AI assistant, positions the company to lead in the next generation of digital tools, though it will require significant capital investment to maintain this pace.

While Meta has faced headwinds from the Reality Labs division’s losses, Zuckerberg remains optimistic about the company’s long-term vision. This “dynamic moment in our industry,” as he describes it, represents a major shift toward AI and metaverse technologies that could shape Meta’s future growth.

Ultimately, Meta is well-positioned for the future, but it is not without its challenges. For those willing to take a long-term view, Meta's commitment to AI and its diverse portfolio of social platforms make it an intriguing option.