Instant Reaction: Microsoft, Meta Earnings Results
Oct 30, 2024
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Mandeep Singh, a senior technology analyst at Bloomberg Intelligence, and Anurag Rana, an expert in Microsoft’s earnings, discuss the latest financial results from both tech giants. Microsoft showcases impressive revenue growth driven by its cloud computing and AI investments. Meanwhile, Meta Platforms enjoys an increase in ad pricing but struggles to meet Wall Street expectations. The conversation dives into the future potential of Meta's language model, Lama, and examines the competitive landscape amid significant capital expenditures by both companies.
Microsoft's cloud and Office software gains underscore the effectiveness of its AI investments in driving revenue growth.
Meta's strengths in advertising stem from AI advancements, despite facing substantial losses in its Reality Labs hardware segment.
Deep dives
Meta's Advertising Performance
Meta Platforms has demonstrated strong advertising performance, with ad pricing experiencing an 11% increase despite a drop in impressions. This growth in ad pricing highlights Meta's effective implementation of generative AI, which has enhanced targeting capabilities compared to competitors like Snap, where ad pricing fell by 7%. Advertisers are drawn to Meta due to the return on investment they receive from their ad spend, as Meta's core advertising business boasts profit margins exceeding 50%. This effectiveness sets Meta apart in the crowded digital ad space, reinforcing advertisers' willingness to allocate more resources to the platform.
Challenges in Reality Labs
Reality Labs at Meta continues to face financial challenges, posting a significant loss of $4.4 billion in the third quarter. Despite a year-over-year revenue increase of 29%, the revenue total of $270 million fell short of analyst expectations, indicating struggles in the hardware market. The investments in virtual reality headsets and augmented reality products remain a drain on overall profitability, as the margins from hardware sales are substantially lower than Meta's main advertising revenues. This ongoing financial burden raises concerns about the sustainability of such investments as Meta seeks to transition into the hardware space.
Future Capital Expenditures and AI Investments
Meta anticipates substantial growth in capital expenditures, potentially reaching $60 billion in 2025, driven by ongoing investments in AI and data center infrastructure. These investments are crucial for developing their large language model, Llama, which has gained traction with around 500 million monthly active users. Owning a competitive AI model provides Meta a strategic advantage against competitors that rely on external models like OpenAI. With a focus on expanding their AI capabilities, Meta aims to solidify its position in the evolving tech landscape, highlighting a significant shift in their operational strategy to embrace artificial intelligence.
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.