Meta, the parent company of Facebook and Instagram, has reported strong second-quarter earnings, exceeding Wall Street's expectations on both revenue and profits. However, the company issued a cautionary note about significant capital expenditure growth in 2025.
In a statement, Meta's CFO, Susan Li, attributed the expected increase in spending to infrastructure costs associated with the company's expanding infrastructure footprint. While specific financial guidance for 2025 will be provided during the fourth-quarter earnings call, Li indicated that infrastructure will be a key driver of expense growth next year.
Meta's second-quarter earnings per share (EPS) reached $5.16 on revenue of $39.07 billion, surpassing analyst estimates of $4.74 EPS and $38.3 billion in revenue. This represents a significant increase from the same period last year, when the company reported EPS of $2.98 and revenue of $31.9 billion.
The company's "Family of Apps" revenue, which encompasses Facebook, Instagram, WhatsApp, and Messenger, also surpassed expectations, hitting $38.72 billion compared to the projected $37.7 billion. In the same quarter last year, this segment generated $31.7 billion in revenue.
Following the earnings announcement, Meta's stock climbed over 4%.
While Meta's advertising revenue continues to drive growth, investors remain interested in the company's AI investments and the timeline for a return on these expenditures. Last week, CEO Mark Zuckerberg announced the release of Meta's latest open-source large language model (LLM), Llama 3.1, and advocated for the industry to prioritize open-source AI over closed-source models like OpenAI's ChatGPT.
Meta's Reality Labs segment, responsible for mixed reality hardware and software, reported revenue of $353 million, slightly better than the previous year but below the projected $376 million. Despite the improvement, the segment continues to experience significant losses, with a reported $4.49 billion loss in Q2, slightly lower than the projected $4.53 billion. This follows a $3.8 billion loss in Q1. The division has faced additional challenges stemming from turnover and a lack of clear vision, as reported by Yahoo Finance's Yasmin Khorram.
Meta's earnings announcement comes on the heels of a $1.4 billion settlement reached between the company and the State of Texas, resolving allegations of Meta's unauthorised use of Texans' biometric data for its Tag Suggestions feature. This settlement, announced by Texas Attorney General Ken Paxton, adds another layer to the company's legal and regulatory landscape.
In conclusion, Meta's strong second-quarter earnings demonstrate its continued financial performance despite significant investments in AI and the ongoing challenges within its Reality Labs segment. However, the company's warning about increased spending in 2025 highlights the need for investors to monitor its financial trajectory and the long-term impact of its strategic investments.
