Dive card:
- Meta revenue rose 22% year over year to $39 billion in Q2, according to an earnings report. The results exceeded Wall Street’s expectations.
- Ad impressions delivered across the Facebook and Instagram owner’s app ecosystem increased 10% year-over-year, while average cost per ad also increased 10%. Executives cited the e-commerce, gaming and entertainment and media verticals as driving the highest growth among advertisers.
- Meta said third-quarter revenue would land between $38.5 billion and $41 billion, a robust forecast. The company continues to focus on artificial intelligence (AI), which it says improves marketing performance and could eventually reshape its advertising fundamentals.
Dive Insight:
Meta offered further details on its vision for AI in marketing as part of a second-quarter earnings report that beat analysts’ estimates. The tech giant currently divides AI into two areas: core AI, or the systems it has used to support its ecosystem for years, and generative AI, a newer technology that is costly to develop and is not yet a meaningful revenue driver, but positioned by managers as transformative.
“In the coming years, AI will be able to generate creative for advertisers as well, and will also be able to personalize what people see,” Meta CEO Mark Zuckerberg said on a call discussing the results with investors. “In the long term, advertisers will basically just be able to tell us a business objective and a budget, and we’ll go and do the rest for them. We’ll get there incrementally over time, but I think this is going to be a very big Thing.”
Analysts see generative AI as a potentially powerful tool for digital ad platforms, although some express concerns about delegating too much work to automation. Marketers themselves may be reluctant to remove the level of oversight envisioned by Zuckerberg.
“Meta is well-positioned to create value with genAI for advertisers, but let’s be clear that it’s a ways off, if ever, before CMOs will simply hand over the keys to an AI agent that will autonomously generate creative on their behalf,” said Mike Proulx, vice president and director of research at Forrester, in emailed comments. “While genAI’s technological capabilities meaningfully mature at an accelerated pace, Meta cannot lose sight of the responsibility and importance of the human touch in the advertising process.”
Currently, much of Meta’s AI heavy lifting is done behind the scenes. The company’s ad ranking framework, Meta Lattice, helped improve ad efficiency and performance in the second quarter, according to CFO Susan Li. More advertisers are now also using Advantage+, a suite of AI-powered ad products that includes tools that optimize ads for different formats and surfaces. In terms of user-friendly AI experiences, Meta boasted that its Meta AI Assistant, which was made generally available last quarter, is on track to become the most used offering in its category by the end of 2024.
AI is also an important part of Meta’s plans to realize the metaverse, one of its long-term strategic goals. But the metaverse continues to be a big loser: Reality Labs, the Meta division tasked with developing augmented and virtual reality hardware and software, incurred $4.8 billion in expenses in the second quarter, up 21% from previous year. The unit generated revenue of $353 million in the period, posting the highest operating loss in two years, and has become a bit of a sore point as scalable consumer use cases remain elusive while costs rise.
“It seems wise at this point for Meta to pivot its metaverse ambitions to a much more narrow focus,” says Proulx.
Meta made progress in streamlining other aspects of its advertising business in the second quarter. The company has fine-tuned which ads to show users when they jump between properties like Facebook and Instagram, which can increase conversions and revenue without increasing ad load. It also recently unified video recommendations on Facebook, bringing together TikTok-like reels, long-form videos and live streams into a single experience.
On the advertiser demand front, e-commerce brands continued to dump money into Meta to reach new users. China-based marketplaces like Temu and Shein have attracted droves of American shoppers with aggressive social media marketing. Asia-Pacific and other global regions were the biggest drivers of the increase in ad impressions in the second quarter, Li said.
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