On October 30, local time, Meta released its unaudited financial report for the third quarter. During the call, Zuckerberg said that Meta plans to continue to increase investment in AI in 2025, which "may not be what investors want to hear in the short term." But he believes the potential rewards are worth it.
As expected, Meta's stock price fell 3% after the bell and continued to fall the next day. As of the close of trading on November 1, Eastern Time, Meta's latest market value fell to US$1.44 trillion, down four percentage points from before the financial report was released, but still at a historical high. In fact, since Meta shifted its strategy from "all in the Metaverse" to "making the best open source large model in the industry" last year, Meta's stock price has been rising, with an increase of more than 70% since the beginning of the year.
Interestingly, although investors cannot be prevented from voting with their feet, many analysts have expressed their "recognition" of Meta's continued investment in AI infrastructure. Analysts generally believe that this is a correct and necessary decision in today's environment.
The ups and downs of Meta's stock price in the past few months also reflect to a certain extent investors' entanglement with major manufacturers' continued investment in AI. On the one hand, the rapid development of AI has made investors more and more convinced that this technology will bring about the most important changes after the mobile Internet and create huge business value; on the other hand, the billions and hundreds of billions and hundreds of investments made by Silicon Valley giants every quarter are We are also worried about the fact that US$100 million has been invested in AI, but the returns in the short term are meager.
Investors are even more worried about Meta, which has "hurt" investors in the Metaverse investment. No one will question Zuckerberg's determination and courage, but this also makes people worry that he will return to the AI era. Make the same mistakes as the Yuan Universe.
01. “This may not be what investors want to hear, but we still need to increase investment in AI.”
On October 30, local time, Meta released its unaudited financial report for the third quarter. The financial report shows that Meta’s revenue for this quarter was US$40.580 billion, a year-on-year increase of 19%; net profit was US$15.688 billion, a year-on-year increase of 35%; diluted earnings per share was US$6.03, a year-on-year increase of 37%.
Regarding the future outlook of the financial report, Meta stated that it plans to continue to invest heavily in AI, and capital expenditures are expected to increase significantly in 2025. Currently, the market expects the company's capital expenditures in 2025 to be around 45 billion. If the Q3 short-term trend is followed, then when the Q4 financial report provides full-year guidance for 2025, it may exceed expectations.
Meta's third-quarter revenue and earnings per share both exceeded Wall Street analysts' previous expectations, but its outlook for fourth-quarter revenue failed to meet expectations; net profit increased 35% year-on-year, setting a record since the second quarter of 2023. the lowest level. Daily active users were 3.29 billion, lower than the expected 3.31 billion.
After the financial report was released, Meta's stock price fell more than 3% after hours, to $573. This seems to illustrate Wall Street's consistent attitude: it is worried about platforms like Meta continuing to invest heavily in AI. After all, Xiao Zha has a "criminal record" and once invested tens of billions of dollars in the Metaverse just to hear the sound. This all-in approach without any return has caused dissatisfaction among investors and employees, which directly caused Meta's 2022 financial report data to fall to a low point.
Zuckerberg is very clear about investors' concerns. He said that Meta plans to continue to increase investment in AI in 2025, even though this "may not be what investors want to hear in the short term." But he believes the potential rewards are worth it.
Since 2023, Meta has adjusted its strategy from all in the Metaverse to all in AI. Unlike the last time it invested in the Metaverse regardless of cost, this time the bet paid off. In July 2023, Meta released a free commercial version of Llama 2. Became the recognized leader in the field of open source large models. The market's recognition of the entire large model industry has paid off for Meta's investment. Since the beginning of this year, Meta's stock price has risen by nearly 70%.
In fact, the attitude of Zuckerberg and the market has not changed. Zuckerberg is still optimistic about the direction and is all in. The market will still help Meta settle accounts and care about the input-output ratio. The difference is that AI has changed. In the past two years, the rapid development of AI technology has given everyone expectations for what kind of value AI will create in the future.
This expectation is particularly evident in analysts' responses to Meta's financial report. Citi analyst Ronald Josey maintained a buy rating on Meta and gave the stock a target price of $645. This means that Meta's stock price can rise by 9%. Pivotal Research analyst Jeffrey Wlodarczak raised Meta's price target to $800 from $780. Judging from the evaluations given by analysts, the market is generally optimistic about Meta's prospects for investing in AI.
Jasmine Enberg, chief analyst at Emarketer, is also optimistic about Meta's future growth. He mentioned: "Meta's artificial intelligence tools can show people more content that matches their interests, which means that even if user growth slows down, the company still has the ability to Get more revenue from users.”
02. Revenue and profit growth slow down, Meta looks for “new stories” outside of advertising
If you look closely at Meta's explanation at the financial report meeting, you will find an interesting phenomenon: Meta has been emphasizing the contribution of AI to the company's revenue, and attributed the company's revenue growth to the adoption of Meta AI, Llama and AI-driven glasses.
From this point of view, Zuckerberg has learned lessons from his previous investment in the Metaverse that caused public outrage. In order to convince investors that Meta's investment in AI is worthwhile, it explained at every financial conference what results Meta's investment in AI has achieved. Let’s take a look at the adoption of Meta AI, Llama and AI-driven glasses respectively, as well as Meta’s main line of development this quarter.
Meta's main source of revenue comes from advertising revenue from the "application family" part. Meta attributes the increase in this revenue to the company's investment in AI.
In the third quarter, the total revenue of the “application family” was US$40.3 billion, of which advertising revenue was US$39.9 billion. A year-on-year increase of 19%. The financial report meeting pointed out that it is the application of Meta AI that has made the AI improvements in the core advertising business significant. Since adopting the new model in the first half of this year, Meta has seen test-based conversion rates increase by 2% to 4% in select segments.
In addition, Meta AI has more than 5 million monthly active users. Last month, more than 1 million advertisers used Meta AI's GenAI tools to create more than 15 million ads, and businesses using Image Generation saw an estimated 7% increase in conversions.
Among the financial report data of many "application families", the Threads community has nearly 275 million monthly active users, and more than 1 million registered people every day. I can’t help but remind the author of the “old hatred” between this social software and Musk.
Threads was launched in July last year. The product form is similar to Twitter. It became famous overnight as soon as it was launched. Within hours of Threads going live, 10 million people had signed up. Less than a week after its launch, that number soared to 100 million. Musk was furious about this, threatening to sue Meta over the new app, and also provoked Zuckerberg on Twitter, calling him a "softie." After all, after Musk took over Twitter, it lost a large number of users.
Two weeks after Threads launched, Mas rebranded Twitter and changed its name to X. According to statistics shared by X in March this year, the platform is used by 250 million people every day and visited by 550 million people every month. Compared with Threads’ 275 million monthly active users, the advantage is still X. But judging from the speed of “1 million new registered users every day”, the competition between the two companies is still continuing.
The AI-powered glasses belong to the reality labs division, which has previously caused headaches for investors due to its reckless investment in the Metaverse. Today, Meta focuses its description on "AI" and "glasses", mainly because of the success of Ray-Ban Meta smart glasses, which have reached global sales of 1 million in more than half a year, and are expected to reach 200 this year. Sales target of 10,000 units. The new transparent version of the glasses Meta released on Connect cost over $1,000 and sold out almost instantly. These are gradually reversing the reputation of reality labs.
In addition to Ray-Ban Meta smart glasses, Orion devices and Quest 3S devices are also head-mounted display products developed and launched by reality labs. The Reality Labs division's third-quarter revenue was US$2.7 billion, a year-on-year increase of 29%, mainly contributed by hardware sales. Reality Labs' expenses were $4.7 billion, up 19% year over year, driven primarily by increased personnel-related expenses and infrastructure costs.
The success of Ray-Ban Meta smart glasses is not only a gain for Meta, but also makes the domestic smart glasses category that was already lukewarm become popular again. According to media reports, in the past six months, nearly a hundred AI glasses companies have emerged in China that compete with Ray-Ban smart glasses.
Xia Yongfeng, founder and CEO of Honeycomb Technology, once revealed to the media: "I know of more than 20 new companies making AI glasses. Later, feedback from the upstream supply chain showed that there are now more than 50 startups making AI glasses. There are even We have established a company that specializes in providing AI glasses solutions, providing ready-made solutions to companies that want to make AI glasses, and supporting OEM production.”
The success of these glasses has led Meta to deepen its cooperation with Essilorluxottica, the parent company of Ray-Ban, and will jointly create a new generation of smart glasses that combine cutting-edge technology and fashion, which is worth looking forward to.
Regarding the Llama large model, Zuckerberg said Meta is using a larger cluster to train the Llama 4 model. He said the fourth-generation model is being trained on "larger clusters than any other model I've seen used" and is expected to feature "new modalities" and "stronger inference capabilities" when it is released next year. ” and “faster performance”.
But Zuckerberg didn't give too clear a direction on how Llama 4 would be integrated with business. How generative AI can generate greater value on social platforms remains to be seen.