Further recovery in ad market, improved product offerings and Meta’s latest AI chip to set the runway for growth.
Meta Platforms is set to release its first quarter of 2024 financial results on 24 April 2024 after the US market closes.
Previous Quarter Review
Meta (META) reported fiscal fourth-quarter net income of $14.02 billion, or $5.33 a share, compared with net income of $4.65 billion, or $1.76 a share, in the same quarter a year earlier.
Revenue expanded 25% to $40.11 billion from $32.2 billion in the year-ago quarter.
Analysts surveyed by FactSet had expected on average net income of $4.82 a share on revenue of $39.1 billion.
A bounce-back in advertising, the continued monetization of Instagram and Reels, and AI-fueled ad-targeting and measurement contributed to the quarter's performance.
Q1 Results Outlook
Analysts expect Meta's revenue to be $36.123 billion, adjusted net income to be $11.749 billion, and adjusted EPS to be $4.396, according to Bloomberg's unanimous expectations.
Recovery momentum in advertising spend to continue through 2024
More than 96% of Meta’s revenue revolves around ad spend, with significant exposure to the US and Canada (40%), Asia Pacific (26%) and Europe (23%).
Forecasts from Interpublic Group (IPG)’s Magna unit suggests that ad spend will continue to accelerate in 2024, with the US ad market expected to grow 9% to reach $369 billion. The recent run in stronger-than-expected US economic conditions seems to validate this view. Not to forget that this year is a US presidential election year, which will likely offer a boost in political ad spending.
The 2020 US election was the most expensive campaign year in history, with an estimated US$9.6 billion in political ad spending. Estimates from eMarketer suggest that political ad spending in the upcoming 2024 election may be 30% higher than the prior election, with a potential 156% spike in digital ad. That may aid to underpin growth momentum for key digital ad players, like Meta and Google, through 2024.
Further improvement in metrics expected
The past year has seen a turnaround in active users and improvement to its average revenue per user (ARPU). In 4Q, the total number of ad impressions served across Meta’s services jumped 21% and the average price per ad increased 2%, which served as validation for its strategy in improving on-platform ad experiences, while investing in models to accurately predict and serve relevant ads to consumers, and improved performance for advertisers.
The management earlier guided that it saw a trend of ‘strong, broad-based advertising demand across verticals, particularly within online commerce and gaming’, which set the tone for the recovery momentum to continue. Having an additional day in the reporting quarter (29 February) may offer some slight benefit as well.
Latest Meta AI chip, product enhancement to be in focus
In a bid to reduce costs and dependence on external suppliers, US big tech firms have turned to developing their own in-house chips in recent years. Meta is no exception and has recently found much success in its chip development efforts.
It recently unveiled its next-gen Meta Training and Inference Accelerator (MTIA) in-house artificial intelligence (AI) chip, which is set to be the successor to last year's MTIA v1. The next-gen MTIA is built on a 5nm process node (versus previous 7nm), boasts more internal memory and runs at a higher average clock speed than its predecessor.
Ahead, market participants will be seeking for more clarity on how the new chips will support Meta’s new generative AI products and services, and its capabilities in boosting the effectiveness of its ads, such as its ranking and recommendation algorithm models.
Meta also confirmed plans for the release of Llama 3 next month, which is the next generation of its large language model used to power generative AI assistants. This product launch is a response to catching up with OpenAI’s ChatGPT and an improvement from its predecessors, Llama 1 and Llama 2, which were previously criticised for being too limited.
While management has previously guided that it does not expect GenAI products to be a meaningful 2024 driver of revenue, it is expected to carry a longer-term impact. Better ad engagement may also underpin user growth and allow Meta to increase ad pricing, which will contribute meaningfully to the company’s growth.
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