Meta’s ad business keeps chugging along, thanks largely to investments in AI-based content recommendation and ad optimization.
The company reported its fifth consecutive quarter of revenue growth in its Q1 2024 earnings call on Wednesday.
Revenue for the quarter totaled $36.5 billion, a 27% YOY increase, with $35.6 billion coming from ads. It was the company’s best Q1 to date, in terms of revenue.
The number of daily active users across Meta’s family of apps, including Facebook, Instagram, Threads and WhatsApp, totaled 3.2 billion in March, up 7% YOY. Ad impressions delivered were also up 20% YOY, and the average price per ad increased 6%.
Meta CEO Mark Zuckerberg pointed to the company’s AI tools as already being instrumental in keeping users engaged and prompting more spend from advertisers. And he said the company has shifted “many of its existing resources” toward further development of its AI features, with plans to spend $10 billion this year on such investments.
But he cautioned that it will likely take years before Meta’s generative AI products, including the Llama 3-powered Meta AI, are ready for monetization. That warning, plus the company’s light expectations for Q2 revenue, contributed to a steep after-hours drop in Meta’s share price.
Playing the long game
Meta is no stranger to ploughing ahead with new products before a monetization model is in place, Zuckerberg said. He cited past products, like Instagram Reels and Stories, and the Facebook News Feed’s transition to mobile as examples of product development priorities the company pursued before revenue-generating models were in place. (Metaverse, anyone?)
During the early stages of these product development cycles, Meta has historically seen its stock price suffer, Zuckerberg said.
Well, call him Nostradamus, because Meta’s stock price fell by between 10% and 20% during after-hours trading. The company’s weak guidance on Q2 revenue, which fell short of investor expectations, didn’t allay concerns about ambitious investments with no clear plans to make money.
Despite partnering with Google and Microsoft to power Meta AI’s organic search citations, Meta has no plans to pursue search advertising, Zuckerberg said in response to an investor question. However, he said he anticipates there will be other opportunities for ads and paid content in Meta AI interactions, and the company is considering paid services for access to more computing power or premium AI models.
Still, Meta’s investments in AI-based content recommendation and campaign optimization are already paying dividends, even if the monetization roadmap for generative AI is unclear.
Currently, AI recommendations deliver 30% of posts on Facebook and 50% of posts on Instagram.
Ad optimization
Meanwhile, ad spend flowing through Meta’s AI-powered campaign planning tools – Advantage+ Shopping and Advantage+ App Campaigns – has more than doubled since last year.
Meta approaches AI tech as a way to gain efficiency in two directions, said CFO Susan Lee.
The first is by tailoring ad experiences to users based on how they use Meta’s platforms and their behavioral preferences for ads.
“We are getting better at adjusting the placement and number of ads in real time,” Lee said, “based on our perception of a user’s interest in ad content.”
The second main use case for AI and machine learning is to deliver better campaign performance. One example is Meta’s ad-ranking architecture, Lattice, which launched last year. Lattice optimizes based on a wider cross section of campaigns, rather than focusing solely on optimizing at the individual campaign level or optimizing specific types of placements.
Meta also made Advantage+’s automated audience builder the default campaign targeting method for most advertisers starting in Q4. Campaigns using Advantage+ audience targeting saw a 28% decrease in cost per click on average.
Meta is also adding more conversion types for Advantage+ Shopping to optimize toward. Previously, the service would only optimize to maximize purchases, but as of Q1, Meta has introduced 10 more conversion types that advertisers can choose to optimize against.
Video highlights
As far as content priorities go, Meta remains bullish on video posts to keep audiences engaged. Instagram Reels, Meta’s TikTok clone, now accounts for 50% of time spent on the app.
And Meta is building an in-app video panopticon to keep its users glued to their screens. This month, it rolled out a new full-screen video player for Facebook that pulls Reels, long-form video and livestreams into a single feed with a unified content recommendation system.
Zuckerberg demurred when an investor asked whether Meta could see tailwinds after President Joe Biden signed a bill into law that forces TikTok parent company ByteDance to divest TikTok to a US-based company, or risk the app being blocked in US smartphone app stores.
Meta is tracking the TikTok developments, Zuckerberg said (with repressed glee). “But at this stage, it is just too early to assess what it would mean for our business.”
