Meta Platforms Inc Q2 2023 Earnings Conference Call Insights

Key highlights from Meta Platforms Inc (META) Q2 2023 Earnings Concall

Management Update:

• [00:04:47] META’s investments in AI are yielding good results, with AI-recommended content driving increased engagement on Facebook. Reels plays exceed 200 billion per day, and monetization efforts are seeing progress across various AI-driven products.

• [00:09:06] META said it’s launching its Quest 3 Mixed Reality Headset at Connect, which will be the most powerful headset yet with better displays and resolution.

• [00:14:50] Strong ad spend in China and other markets drove revenue growth. Impression growth was highest in Asia Pacific and rest of the world.

Q&A Highlights:

• [00:27:01] Brian Nowak from Morgan Stanley asked what are some of the most exciting consumer advertiser offerings that META is enabling through AI agents, such as LLAMA? Mark Zuckerberg CEO said META is working on three categories of products with generative AI: agents, generative AI-powered features, and productivity and efficiency tools.

• [00:27:15] Brian Nowak from Morgan Stanley also enquired about the technological barriers that need to be overcome to scale agent products across ecosystems and the timing of it. Mark Zuckerberg CEO clarified that META is working on a variety of AI agents, including those for helping people connect with creators, businesses, and each other. The company is still in the early stages of development, but it is excited about the potential of these agents to improve the user experience and drive new business opportunities.

• [00:32:11] Eric Sheridan with Goldman Sachs asked if META is seeing the developer community around LLAMA 2 as an opportunity to expand into the enterprise market? Mark Zuckerberg CEO replied META is releasing LLAMA as an open source project to encourage community innovation and improve safety and efficiency. The company will also partner with public cloud providers to monetize the project. And LLAMA will not be a separate revenue stream for META.

• [00:32:40] Eric Sheridan with Goldman Sachs also asked about the drivers of VRL losses and how the company plans to earn a return on those losses in the medium to long term. Susan Li CFO said META is investing heavily in the metaverse, including the development of the Quest 3 headset. The company believes that the metaverse is a long-term opportunity, and is willing to spend money now to be a leader in the space.

• [00:40:06] Mark Shmulik at Bernstein asked how have company’s priorities changed since the beginning of the year, and where is META spending most of its time now. Mark Zuckerberg CEO said META’s priorities have been consistent for a few years, with a focus on AI and the metaverse. The company is confident that it will be a leader in these areas, and is not seeing any major threats from competitors.

• [00:42:06] Mark Shmulik at Bernstein enquired about the key drivers of the acceleration of growth in the core ad business, especially compared to the rest of the sector. Susan Li CFO answered that META’s 2Q revenue acceleration was driven by a number of factors, including increased supply, improved ad performance, and lower FX headwinds. The company is also seeing strong adoption of Advantage+ products, especially in the e-commerce and retail verticals.

• [00:50:52] Doug Anmuth with JPMorgan asked about the reasons behind the $3 billion reduction in capex outlook for this year and provide some context on the potential magnitude of the capex increase expected in 2024? Susan Li CFO answered that META’s 2023 capex forecast was reduced due to cost savings and delays in data center projects and server deliveries. META expects capex to increase in 2024, driven by investments in data centers, servers, and AI workloads.

• [00:56:36] Youssef Squali of Truist Security asked that Q3 guidance implies a steep acceleration in growth compared to Q2 and what are the drivers behind this acceleration, and with easy comps in 4Q, do you believe this growth rate is sustainable until year-end. Susan Li CFO said META expects Q3 revenue to accelerate from 2Q, driven by a weaker compare, a favorable currency exchange rate, and continued execution on its core monetization work.

• [01:01:25] Brad Erickson with RBC Capital Markets enquired how dependent is META’s 2024 capex outlook on new product development and revenue growth expectations. Susan Li CFO answered that META’s 2024 capex outlook is being driven by growth in AI investments, both in core AI and next-generation AI efforts. META is mindful of its intention to reduce the capital intensity of these investments over time.