Meta Q3 Conference Call: AI is a top priority for 2024, revenue outlook uncertain for next year

Meta's third-quarter revenue and earnings per share both exceeded expectations, thanks to continued cost-cutting measures that have proven effective. The company's profits surged beyond expectations, causing its stock price to rise by 5.5% during the conference call and after-hours trading.

During the conference call, Meta CEO Mark Zuckerberg pointed out that artificial intelligence (AI) will be the company's top investment priority in 2024.

The effectiveness of Meta's short video business is becoming apparent, with Reels driving over 40% growth in Instagram usage since its launch. The monthly active users of Threads, a short messaging social platform dubbed the "Twitter killer," are approaching 100 million. Zuckerberg stated that enterprise messaging services will be the next major pillar of the company.

During the conference call, Meta warned that its advertising business is heavily dependent on macroeconomic conditions related to spending, and the company's revenue prospects for next year are uncertain. As a result of these pessimistic forecasts, Meta's stock price declined.

AI is the Priority for 2024

Zuckerberg stated that artificial intelligence will be the company's top investment priority in 2024, and the company's human resources will be shifted towards AI. He said:

"Artificial intelligence is still evolving, and we have started to introduce many new consumer AI experiences through the Connect developer conference. We expect these experiences to become an integral part of all our applications and businesses in the coming years.

The experiences we are launching on Connect will change the way people use all of our services, information feeds, messages, hardware, advertising, business messages, and interact with creators.

It takes time to refine these products and the vision we outlined on Connect, so that billions of people can use them. I expect perfecting these products and the vision we presented on Connect to be the theme of our next year."

Zuckerberg emphasized that this will also be reflected in resource allocation:

"In terms of investment priorities, AI will be our largest investment area in terms of engineering and computing resources in 2024. However, I want to avoid allocating a large number of new human resources. Therefore, we will continue to lower the priority of many non-AI projects within the company in order to shift human resources to AI work."

Meta is betting on using AI algorithms to recommend content that keeps users engaged on Facebook and other social media platforms under its umbrella.

Threads Approaching 100 Million Monthly Active Users

Meta's "Family of Apps," including Facebook, Instagram, Messenger, WhatsApp, and other services, saw revenue growth in the quarter exceed expectations by over 20%, with profits far surpassing expectations and increasing by nearly 90%.

Regarding Instagram's short video application Reels, Zuckerberg stated:

"We estimate that with all the ranking and product improvements we have made, Reels has driven over 40% growth in Instagram usage since its launch."We have also achieved profitability milestones earlier than expected, and we estimate that Reels now accounts for a net neutral portion of the company's overall advertising revenue.

Threads, the short messaging social platform known as the "Twitter killer," has nearly 100 million monthly active users. Zuckerberg stated that he will focus on further developing this community.

He also said, "I have long believed that there should be a more active public conversation app with 1 billion users," implicitly taking a dig at Twitter and Musk. Musk stated in November last year that he expected Twitter's monthly user count to exceed 1 billion within a year and a half, but a recent report showed a decline in traffic and monthly active users in September compared to the same period last year.

Enterprise messaging services continue to grow, and Zuckerberg stated:

I believe it will be the next major pillar of our business, with over 600 million conversations between people and businesses on our platform every day.

Bleak outlook for next year, Meta stock price falls

Meta's expenditure-to-revenue ratio for the third quarter dropped to its lowest level in years at 59%. Summing up, Zuckerberg expressed his satisfaction with the efficiency gains:

We have become a leaner organization, delivering and advancing technology at a faster pace in all long-term plans, while also heavily investing in the future. We have just achieved the highest operating profit margin in two years. Therefore, I look forward to increasing product momentum and operational discipline.

Looking ahead, Meta expects fourth-quarter revenue to be between $36.5 billion and $40 billion, with the midpoint higher than Wall Street's expectation of $38.76 billion.

Meta also issued a warning that next year, the company's focus on investment in the metaverse business will significantly expand losses compared to this year.

During the conference call, Meta warned that the advertising business is heavily dependent on expenditure-related macroeconomic conditions. Meta CFO Susan Li stated during the call that Meta is highly susceptible to fluctuations in the macro environment, and the revenue outlook for next year is uncertain.

Due to the pessimistic performance guidance, Meta's stock price had erased all gains and fell by 3.35% at the end of the conference call.