Friends who pay attention to AI must be very concerned about Meta's performance today, although the company's guidance was lower than expected, but at the results exchange meeting, the company announced that it will continue to increase its investment in AI.
The company continued its strong growth momentum in the first quarter, with overall revenue and earnings beating analysts' expectations and reaching the upper end of the company's Q1 guidance, but fell sharply after hours as the guidance fell short of expectations, breaking the confidence of bulls.
However, in terms of artificial intelligence, which the market is most concerned about, the company once again announced that it will increase capital expenditure on AI data centers, achieving two consecutive quarters of improvement.
Increasing investment in AI and significantly increasing capital expenditure expectations for the full year 2024
At the results meeting, the company guided full-year 2024 capital expenditures in the range of $35 billion to $40 billion, up from the previous range of $30 billion to $37 billion and far exceeding market expectations. The increase in capital expenditure is still intended to support its ambitious plans for AI.
In addition, capital expenditures are used to:
• Reality Labs —— VR/AR的研发；• 芯片开发；
From a financial point of view, the company's current book cash and cash equivalents are nearly 32.3 billion US dollars, and the single-quarter cash flow in 24Q1 is nearly 12.531 billion US dollars. Sufficient capital expenditure to support the company's planning.
According to the company's plan at the beginning of the year, by the end of 2024, the company will have 350,000 NVIDIA H100GPU, and its total computing power is equivalent to 600,000 H100 chips if you count the other GPUs it already has. In comparison, the training of GPT-4 with 1.8 trillion parameters requires 8,192 H100 GPUs, and 600,000 H100 tablets can support the training of nearly 74 large models of the same size.
In 2023, Meta and Microsoft tied for first place with 150,000 H100 GPUs purchased. In 2024, Meta proposed a plan to "add 350,000 H100 blocks to build large-scale computing infrastructure", which greatly enhanced the company's AI competitiveness.
The capital expenditure has increased by nearly 3 billion US dollars, assuming that it is used for the construction of AI data centers, and it is necessary to consider supporting energy, cooling systems, depreciation, operating expenses and other cost factors. According to the estimates provided by industry experts, 350,000 H100s require an investment of nearly 8.75 billion US dollars (cards only).
The Llama 3 model has been applied to all business platforms of the company
The capital expenditure on GPUs will ultimately have to fall on Meta's Llama series, an industry disruptor.
On April 20, the company released the 8B and 70B Llama 3 models, while indicating that the 400B+ parameter Llama 3 model is being trained.
In the performance meeting, Meta said that the AI model has been gradually applied to the company's products, and has achieved many outstanding results, which are manifested in:
• Approximately 30% of Facebook's News Feeds are published through AI recommendation systems, • More than 50% of the content people see on Instagram is now recommended by AI, and • Reels has increased user watch time by 8% to 10% after introducing AI model recommendations;
At present, the Llama 3 model is also applied to the company's various business platforms.
Obviously, the power of Llama 3 is already starting to show, and the threat to closed-source models such as Open AI and Claude is coming.
The popularity of China's e-commerce going overseas has not decreased, and AI empowers accurate advertising
The year-on-year increase in revenue in the first quarter was mainly due to the unabated demand from Chinese manufacturers going overseas, the year-on-year increase in the total number of advertising impressions and the increase in advertising unit price.
Going to sea ——
In 2023, China's e-commerce overseas boom will rise again, and the overseas demand for products will drive the demand for overseas advertising. Advertising revenue from China accounted for 10% of Meta's total revenue throughout 2023 and contributed 5 percentage points of growth. Data shows that in the first quarter of 2024, the enthusiasm of Chinese companies for overseas advertising is still undiminished.
It should be noted that the possibility of future marketing budget cuts for Chinese e-commerce and game manufacturers is mainly due to geopolitics (tariff increases, etc.) and the macroeconomic downturn.
Year-over-year increase in ad impressions –
The company said at the performance meeting that the AI model has been applied to the advertising push system and achieved accurate push, which is reflected in the year-on-year increase in the total number of advertising impressions, and the year-on-year increase of 20% in Q1.
Of course, the increase in the total number of ad impressions is also related to the continuous optimization of the company's business:
• AI model empowers precise advertising push• Threads user scale expands• Reels user dwell time increases• Whatsup launches Click-to-Messenger function
Increase in advertising unit price ——
According to the company's disclosed financial report, in the past five quarters, the advertising unit price has rebounded, and has rebounded year-on-year for two consecutive quarters.
It is speculated that it is because of the improvement of Meta's AI technology and infrastructure, which has improved the accuracy and effectiveness of advertising delivery, thereby increasing the value of advertising.
Net profit doubled year-on-year
Revenue in the first quarter increased by 27% year-on-year, but net profit increased by 116% year-on-year, far exceeding revenue growth. This was mainly due to higher revenues, lower operating expense ratios and lower tax rates.
Judging from the financial data, Q1 2024:
• Revenue increased by 27%: Chinese manufacturers' overseas demand, total number of ad impressions increased year-on-year, and advertising unit price increased; • Operating expense ratio decreased by 11%: increased revenue base, and the company's large-scale restructuring and layoffs in 2023; • Tax rate reduction of 9%: The specific reason for the tax rate reduction was not clearly stated in the financial report, and the company pointed that the tax rate for the full year will be at a moderate level.
Reality's continued losses, but within market expectations, do not constitute a bearish factor
The company continues its strategy of focusing on both AI and metaverse (VR/AR), and plans to invest heavily in Reality Labs. The business's revenue in 24Q1 was 440 million, lower than the market expectation of 496 million, and the department's operating losses continued to be lost. However, as early as the Q4 performance meeting in 2023, the company reminded that the business will expand its losses in 2024, and the losses are within market expectations and do not constitute a negative factor. During the event, the company reiterated its expectation that Reality Labs' operating losses will increase significantly year-on-year in 2024.
Privacy concerns and antitrust investigations have led to rising legal costs
In the first quarter, the Company's General and Administrative Expenses (G&A) increased by 20%, mainly due to higher legal fees. This is related to the recent number of monopoly-related lawsuits and investigations the company has faced around the world, as well as the legal issues involved in the privacy of users of the company's products.
After-hours stock prices dived
The high performance in 2023 has made the investment market optimistic, and the market expects Meta to continue its considerable growth rate. This means that Meta may need to continue to beat expectations and improve its guidance in order to maintain its current stock price levels. Therefore, although Q1 revenue was $36.46 billion, it was higher than analysts' expectations of $36.12 billion. However, the Q2 guidance was lower than expected, resulting in a 16% drop in after-hours trading.
Overall, the company's first-quarter performance data is still very impressive. Although the Q2 guidance was less than expected, the market reaction may have been a bit aggressive, given the company's consistently conservative guidance style. However, the significant increase in capital expenditure on AI still reflects the high prosperity of the industry.
Now it's up to Microsoft and Google to spend on capital spending.
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