Event: After hours on October 25th Eastern Time, Meta released a 23Q3 performance announcement. After the market, the stock price rose by a maximum of 4.8%, and then fell below the closing price.
The year-on-year growth rate of revenue for the 23Q3 Meta reached a new high since the 21Q3, and its net profit reached a historical high since its listing. 23Q3 Meta achieved a revenue of $34.12 billion (vs. Reinitiv consensus expectation of+1.74%), an increase of 23.1% year-on-year; Net profit of $11.58 billion (vs. consensus expectation+23%), an increase of 163.5% year-on-year. The strong year-on-year recovery in net profit in Q3 is mainly due to the significant results of cost reduction and efficiency increase of the company, and the continuous optimization of personnel structure. The company is committed to changing the backlog of recruitment demand and continuing to shift Meta's workforce towards higher cost technical roles to support technology intensive strategic priority areas such as AI in 2024. The company expects infrastructure related costs to increase in the next 24 years. Depreciation expenses will significantly increase compared to 2023.
The daily active users and ARPU of the series of apps have grown steadily, providing support for the advertising business. 23Q3 Meta's advertising revenue was $33.64 billion, a year-on-year increase of 23.5%, accounting for 98.6% of the company's total revenue. 1) The year-on-year growth rate of DAP still rebounds under a high base. The DAP of platforms such as Facebook and Instagram under the 23Q3 company reached 3.14 billion, a year-on-year increase of 7.2%. 2) ARPP has increased significantly compared to the same period. The average ARPP of the 23Q3 series apps reached $8.7, an increase of 15.7% year-on-year. 3) Reels short videos bring structural optimization space to advertising revenue. According to the 23Q3 performance call, Reels has driven an increase in Instagram usage time of over 40% since its launch, and monetization progress has exceeded expectations, achieving breakeven. 4) Utilize AI technology to drive the improvement of advertising performance. The company continues to adopt more advanced advertising models and AI technology to promote advertising automation, and the Meta Advantage+suite provides more support for advertisers.
We have launched multiple AIGC products and features in a centralized manner. 1) Meta AI: Answer questions, obtain information, and generate images. 2) AI Studio Platform: Helps users create interactive AI assistants. 3) Image Generation Model Emu: Helps users quickly generate images and stickers. 4) Business AI Beta: Create AI for sales business to interact with customers, helping businesses reduce labor costs. 5) Creator AIs: Provide AI for content creators to interact with fans, and fans can establish communities around AI. It will be launched in 24 years.
The post market decline in stock prices is mainly due to the continuous expansion of operating losses at Reality Lab. The operating profit of the main business in Q3 was 17.49 billion US dollars, an increase of 87.3% year-on-year; Reality Lab suffered an operating loss of $3.742 billion, with a year-on-year increase in losses for the next 23 years. According to the company's guidelines, Reality Lab remains one of the company's four priorities for the next 24 years. Due to ongoing AR/VR product development work and investments to further expand the ecosystem, the operating losses of Reality Lab in the next 24 years will significantly increase year-on-year.
Driven by AI, capital expenditure has increased in the past 24 years. The company has narrowed the scope of its 23 year capital expenditure guidance from $27-30 billion to $27-29 billion. It is expected that the capital expenditure for the entire year of 24 will be between $30-35 billion, a year-on-year increase of 11.1% -20.7%. AI accounted for the highest proportion of capital expenditure improvement in the past 24 years. According to the 23Q3 performance call, the company will cancel the priority of some non AI projects and shift its strategic focus to AI.
Investment suggestion: AIGC tools aimed at advertisers can effectively improve the efficiency of advertising placement; Social platforms have a huge user base and have the advantage of channel distribution. The AIGC function for users has a lower user reach cost. It is recommended to pay attention to: a large company that is expected to become an AIGC ecological traffic portal, has user traffic pools, and deep technical reserves. Tencent Holdings is recommended, and Baidu S and Alibaba SW are recommended;
Risk reminder: AI technology and product iteration are less than expected risks; Risk of intensified industry competition; Risks of less than expected commercialization progress; Domestic and foreign policy risks.