What to Watch With Meta Platforms’ Q4 2024 Earnings: Ads, AI, and Capex

TradingKey - For technology investors and Millennials that came of age during the rise of the big social media platforms, Facebook owner Meta Platforms Inc (NASDAQ: META) dominates the space.

The company started out with Facebook and slowly built up its other platforms that now include Instagram, WhatsApp, and Threads. However, it’s in the space of Artificial Intelligence (AI) that CEO Mark Zuckerberg has placed the company’s next big bet. 

While that’s further off into the future, its core advertising business – on the back of its massive platforms – continues to perform well. 

Investors will get chance to see how Meta’s various business units are performing when the company reports its latest Q4 2024 earnings on Wednesday (29 January) after the market closes in the US. Here’s what they should be on the lookout for.

Ad revenues and capex on the menu

For investors looking at Meta’s ability to generate cash in the here and now, then the company’s core advertising business is where everyone has to look to. That’s because, as of the company’s Q3 2024 results, advertising contributed over 98% of Meta’s overall revenue.

In its latest Q3 2024 quarter, revenue came in slightly ahead of expectations at US$40.59 billion – up a healthy 19% year-on-year – and beating out consensus estimates for US$40.25 billion. 

However, a small miss on growth in daily active users (DAUs) suggests that Meta’s platforms are likely to soon hit a ceiling – in terms of users – as the 5% year-on-year DAU growth in Q3 2024 brought the total number of people on Meta’s platforms to 3.29 billion.

Meanwhile, Meta’s management has guided for Q4 2024 revenue of between US$45 billion and US$48 billion, with the midpoint of the range slightly ahead of where analysts had projected Q4 revenue to be (US$46 billion).

Like other Big Tech companies, Meta is spending a lot on capital expenditure (capex). Meta CFO Susan Li had indicated in October’s earnings call that capex will increase significantly in 2025 as a requirement of supporting Meta’s AI infrastructure buildout. No doubt, investors will be keen to hear from Meta just how big the 2025 capex numbers are forecast to be.

How will AI ads and Reality Labs fare?

One of the big justifications for expanding into AI, from Zuckerberg, has been the fact that AI can help Meta’s core advertising business boost its efficiency and time spent on its platforms.

That played out in Q3 2024 as AI-driven feed and video recommendations led to an 8% increase in time spent on Facebook and a 6% increase for time spent on Instagram. Tools driven by AI also made content more relevant on its platforms and contributed to ad pricing being boosted by 11% in the latest quarter.

Clearly, more evidence of AI leading to better revenue growth and improved margins will be on the minds of investors.

Another thing that will likely catch the attention of investors is just how much money Reality Labs – Meta’s division that focuses on AI and augmented reality (AR) – will lose. 

Meta’s Reality Labs has been a consistent loss maker

Sources: Bloomberg, company filings

It has been a big money loser for the firm in the past four years or so and in Q3 2024 Reality Labs reported an operating loss of US$4.4 billion for the period.

Investors will want to see more monetization from the company’s AI initiatives like its Llama large language model (LLM) or the AR smart glasses partnership with Ray-Ban.

Looking further out

It seems as though investors who are invested in Meta will have to stick by CEO and founder Zuckerberg as he goes “all in” on AI and its potential to transform the company over the next decade.

He has big plans for Meta and its AI ambitions, with the company already developing a Llama 4 LLM that will help power its AI products and services.

Over the past year, Meta shares have risen by 60.5%, easily outperforming the S&P 500 Index’s 23.6% return.