Instant Reaction: Microsoft, Meta Earnings Results
Oct 30, 2024
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Mandeep Singh and Anurag Rana, senior technology analysts at Bloomberg Intelligence, delve into the latest earnings of Microsoft and Meta. They highlight Microsoft's robust growth driven by AI investments in cloud computing and Office software. Meta's projection for the holiday quarter is strong, fueled by advancements in AI advertising, yet it faces challenges with financial losses in its Reality Labs division. The duo discusses the competitive landscape in AI and digital advertising, painting a vivid picture of tech’s evolving dynamics.
Microsoft's investments in artificial intelligence are yielding results, significantly boosting revenue in its cloud and Office software divisions.
Meta's ad pricing is increasing, indicating a strong return on investment for advertisers, despite ongoing losses in its Reality Labs segment.
Deep dives
Meta Platforms' Earnings Insights
Meta Platforms reported fourth quarter revenue expectations that align closely with market estimates, indicating a potential revenue range of $45 billion to $48 billion. Mark Zuckerberg described the quarter as 'pretty good,' although shares dipped slightly in after-hours trading. A key point of interest was the company's ad pricing, which increased by 11%, surpassing other platforms like Snap, which experienced a decline in ad pricing. This suggests that advertisers find a higher return on investment with Meta, bolstering its position in the digital ad market despite challenges in its hardware segment.
Challenges and Losses in Reality Labs
Reality Labs, the segment focused on virtual and augmented reality, posted significant losses totaling $4.4 billion in the third quarter. Despite a 29% year-over-year increase in revenue to $270 million, these numbers fell short of analysts' expectations. The ongoing investments in hardware, such as VR headsets and Ray-Ban smart glasses, continue to exert pressure on Meta's overall profitability, as their margins are substantially lower than the company's core advertising business. Analysts expect that these losses will persist, affecting Meta's operating profits in the near future.
The Future of Capital Expenditures and AI Integration
Meta anticipates substantial growth in capital expenditures for 2025, potentially increasing from $40 billion to around $60 billion, reflecting its focus on data centers and AI investments. The integration of the LLaMA language model, which has reportedly reached 500 million monthly active users, signifies Meta's efforts to enhance its AI capabilities, although it is not yet available as a standalone application. This investment in AI technology aims to solidify Meta's competitive edge against companies like Microsoft and Google, who are also heavily investing in their AI infrastructures. However, the high expectations for growth may create volatility in Meta's stock as they navigate these investments amid market scrutiny.
Microsoft's cloud-computing and Office software businesses fueled stronger-than-projected quarterly revenue growth, a sign that the company’s hefty investments in artificial intelligence are starting to pay off. Meanwhile, Meta Platforms projected stronger-than-expected holiday quarter sales, and touted AI improvements to its core advertising business. But it wasn’t enough to satisfy Wall Street. For instant reaction and analysis to these results, plus other tech earnings, hosts Tim Stenovec and Katie Greifeld speak with Bloomberg Intelligence senior technology analysts Mandeep Singh and Anurag Rana.