What happens when a Big Tech CEO gets on an earnings call these days?
They talk about AI.
AI will be Meta’s “biggest investment area” in 2024, CEO Mark Zuckerberg told investors during the company’s Q3 earnings call on Wednesday.
But Meta isn’t planning a hiring spree to support its AI vision. In keeping with its “year of efficiency,” which included multiple rounds of mass layoffs in less than a year, Zuckerberg said Meta will “continue deprioritizing a number of non-AI projects across the company” to shift more people to focus on artificial intelligence.
Zuckerberg didn’t specify which “non-AI” projects will be getting the shaft.
He did, however, highlight Meta’s ongoing commitment to the metaverse, pointing to the release of the Quest 3 headset in early October.
Quest 3 sales aren’t included in Meta’s Q3 numbers because the quarter ended in September. But even if they were included, they arguably wouldn’t put much of a dent in the company’s Reality Labs losses.
That’s because the operating loss for Reality Labs, Meta’s R&D division for the metaverse, was $3.7 billion in Q3 – following a roughly $3.7 billion loss in Q2. (Revenue for Reality Labs was just $210 million in the third quarter, down 26%, primarily due to lower-than-expected sales of the previous generation of the Quest headset.)
Reality check
But although Reality Labs bites (sorry, had to), Meta remains, as ever, an ad-revenue-generating machine.
Advantage+ Shopping Campaigns, for example, which is a relatively new tool and part of Meta’s Advantage+ product suite, has reached a $10 billion run rate in just over a year.
Meanwhile, total ad revenue in the third quarter across Meta’s family of apps – Facebook, Instagram, Messenger and WhatsApp – was $33.6 billion, up 24% year-over-year. Total revenue in Q3 clocked in at $34.1 billion, a 23% YOY increase.
Ad revenue growth was strong across regions, up 17% in North America, 19% in Asia Pacific, 35% in Europe and 36% in the rest of the world.
Online commerce was the largest contributor, followed by CPG and gaming, said Meta CFO Susan Li, who noted that, specifically, online commerce and gaming benefited from strong spend among advertisers in China looking to reach customers in other markets.
Meta experienced this growth despite a 6% decrease in the average price per ad. Most of Meta’s impression growth – the total number of ad impressions served across its service increased by 31% in Q3 – was driven within lower-monetizing regions and across lower-monetizing surfaces, like Reels.
“While overall pricing remains under pressure from these factors,” Li said, “we believe our ongoing improvements to ad targeting and measuring are continuing to drive improved results for advertisers.”
According to Meta, enhancements of its AI-driven feed recommendations have led to a 7% increase in time spent on Facebook and a 6% increase on Instagram.
For Reel
Still, some advertisers are apparently unconvinced.
A recent story in The Information claims Meta has been struggling to get advertisers to embrace Reels as a marketing channel and that it no longer aggressively pitches Reels to agencies.
But, according to Li, Reels is now “revenue neutral” to overall company ad revenue and has become such a core part of the experience on Instagram and Facebook that “we don’t anticipate quantifying the net revenue contribution from Reels going forward.”
Guess that’s what happens when an ad format grows up.
“We’re going to continue focusing on Reels,” Zuckerberg said, “but we’ll also look at growing it as part of our overall portfolio of video services, which make up more than half of the time that is spent on Facebook and Instagram – and there’s a lot more to do across all of these.”
