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Microsoft, Meta Beat Estimates As Big-Tech Sturdy
Microsoft results can be a tough cover.
A lot depends on what Amy Hood says during the call, and th
Of all the Megas, META is in the best position to benefit from AI near term, by internally using AI to improve every aspect of its own business: better advertising, more content, driving up screen time (+6-7% FB/IG), more ads, higher pricing (ad price +10%).
META has the technical chops to build, test, adopt, improve its AI usage, in a way that its users (consumers and advertisers) could never manage on their own, and can leverage its work over hundreds of millions of users who are, in the end, all basically doing the same thing. Compare to waiting for Office users to use Co-Pilot, or for Salesforce customers to use agents. META can, in effect, drive AI usage more rapidly than users might choose on their own.
META also does a good job of laying out its pipeline of future growth areas. Topline growth +16% slowed from 4Q but ad volume +5% should improve as Threads gets monetized. DAP +6% but META is inching closer to monetizing WhatsApp and Messenger.
Reality Labs’ $4BN loss seems hardly worth fussing about – it is basically META’s R&D expense, and AR in AI glasses is easier to imagine being widely adopted than VR goggles. Slightly lowered expense guidance, and note COGS excluding D&A as pct of revenue is breaking to new lows, maybe shows more work being done by AI? By end 2025, Zuckerberg thinks his AI will replace mid-level software engineers and “AI will be doing research on AI”, so investors are licking their lips at the RIFs to come.
Note that to date, META’s internal AI use has been error-tolerant (so what if a user gets shown suboptimal or too much/too little wrong content/ads) but this may change as it rolls out AI agents intended to handle customer interaction and make business decisions for advertisers.
Finally, falloff in Chinese e-commerce advertising was acknowledged but is supposedly baked into guidance. Seeing META (guide to) easily handling a precipitous drop from what had been a major driver of growth, investors will be reassured.
Good quarter, good guide. I was cautious into the quarter, and wrong.
JL – do you personally ever click through on ads and actually spend money on a product or service being pushed at you?
Obviously some folks do, but I wonder if they are in the top 5% or the rest of us travelling in steerage. That may become an increasingly important distinction going forward, no?
I actually have bought a few slouchy urban-cool Japan-style pants from FB ads. Including a brown fuzzy pair that made me look like Winne the Pooh.
The glasses do sound cool.
But where were those pants made? And at what kind of price point? I’m just trying to figure out who will be spending large amounts advertising on the platform. Automakers? VRBO? Tiffany? Pharma vendors? After all, they ARE an ad-driven business, no?
The pants were made in China, regardless of the Japan-style marketing.
So you’re hitting on my concern. META and to a large extent GOOG are basically advertising businesses. Advertising is one of the first things to get cut in a downturn. Bulls say other channels get cut first – print, lesser online platforms, maybe TV – while the “premier” online platforms are resilient. META’s 2Q guide implies they see advertising holding up so far. But we know from 2022 that their advertising business ultimately got hit too. Maybe that slump was all AAPL’s fault, maybe AI-created campaigns are game-changers, but we also know 2022 wasn’t even a mini-recession.
I’m also a satisfied user of the Ray-Ban Meta smartglasses, and when they introduce the version with screens I’ll probably buy those too. I even tried working in VR with Oculus VR googles, it wasn’t fully successful but I can see when I won’t have to haul a heavy case of screens on vacations.
I’ve been seeing ads promoting WhatsApp pop up all over the place, in spaces both online and off. Monetization must really be just around the corner.
Does capex include cost to endear the Tariff Man? Better, would he even allow the line item?
“Cloud” is a much better name for a rescue ferret.
Damn, H. Shots fired at Evercore’s Kirk Materne lol