By Katie Paul and Yuvraj Malik
(Reuters) – Meta Platforms beat market expectations for second-quarter revenue on Wednesday and issued a rosy sales forecast for the third quarter as well, signaling that robust digital-ad spending on its social media platforms can cover the cost of its artificial-intelligence investments.
Shares of the company rose 8% after the bell.
The Facebook and Instagram parent company said revenue rose 22% to $39.1 billion for the April to June period. Analysts had expected revenue of $38.3 billion, according to LSEG data.
It also said it anticipates third-quarter revenue in the range of $38.5 billion to $41 billion, the midpoint of which is slightly higher than analysts’ estimates of $39.1 billion.
Meta’s earnings come after disappointing results posted by fellow tech industry powerhouses which suggested the payoff from hefty investments in AI technology may take longer than Wall Street had hoped.
Microsoft said on Tuesday it would spend more money this fiscal year to build out AI infrastructure, while Google parent Alphabet warned last week that its capital spending would stay elevated for the rest of the year.
Like both of those companies, Meta has been plowing billions of dollars into its data centers in an effort to capitalize on the generative AI boom. Its shares sank in April after it disclosed a higher-than-expected expense forecast, quickly knocking $200 billion off its stock-market value.
That ended a run of strong quarters for Meta, which has climbed back from a share price meltdown in 2022 by slimming its workforce and leaning in to investor excitement about generative AI technologies.
The company said it would continue to spend big on AI infrastructure, anticipating 2024 capital expenditure would fall between $37 billion and $40 billion, up $2 billion at the lower end from its previous forecast of $35 billion to $40 billion.
It left its total expense forecast for the year unchanged at $96 billion to $99 billion.
Meta has been updating its ad-buying products with AI tools and short video formats to boost revenue growth, while also introducing new AI features like chat assistants to drive engagement on its social media properties.
In a departure from its peers, Meta has released its AI models mostly for free, wagering that this approach will pay off in the form of innovative products, less dependence on would-be competitors and greater engagement on its core social networks.
The company also stands to benefit if developers use its free models over paid ones, which would undercut the business models of rivals. Developers generally see Microsoft-backed OpenAI as the industry leader, but Meta revealed key performance gains with its Llama 3 release last week that could make its models more attractive.
(Reporting by Yuvraj Malik in Bengaluru and Katie Paul in New York; Editing by Sriraj Kalluvila and Matthew Lewis)
