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A Nostalgic Echo: “Video Killed the Radio Star”
In 1979, The Buggles released the iconic song “Video Killed the Radio Star,” reflecting on how emerging technologies can overshadow older forms of media. Fast forward nearly fifty years, and we find ourselves at a similar crossroads, this time with artificial intelligence (AI) poised to redefine the landscape of digital content. As video continues to dominate user engagement on platforms like Meta, the rapid evolution of AI could signal a shift that might leave the “video star” in the dust.
Meta’s Q3 Earnings: A Familiar Narrative
Last week, Meta reported its Q3 earnings, revealing a story that is becoming all too familiar. While the company showcased impressive user engagement numbers, the shadow of rising AI investments loomed large. With over 3.2 billion people using at least one of Meta’s apps daily, the company stands alongside giants like Google and YouTube in leading AI into the mainstream. However, this evolution could disrupt the creator economy as we know it.
Key Highlights from Meta’s Q3 FY24
Family of Apps (FoA): This segment includes Facebook, Instagram, Messenger, and WhatsApp.
Reality Labs (RL): Focused on virtual reality hardware and supporting software.
FoA saw a year-over-year growth of 5%, reaching 3.29 billion daily active users. However, the pace of user growth has slowed, with only 20 million new users added in Q3 2024, a significant drop from the 50 million per quarter seen earlier in the year.
User Engagement and Advertising Metrics
Meta’s reach now encompasses over half of the global population aged 15 to 80. Future growth will hinge more on enhancing engagement and ad efficiency rather than merely adding new users.
Facebook: Positive trends among Gen Z in the U.S.
Instagram: Sustained strong global growth.
WhatsApp: Surpassed 2 billion calls daily.
Meta AI: Now boasts 500 million monthly active users.
Threads: Grew to 275 million monthly actives, with significant growth in regions like the U.S., Taiwan, and Japan.
In terms of advertising, ad impressions grew by 7% year-over-year, while the average price per ad increased by 11%. The average revenue per user rose to $12.29, significantly outpacing competitors like Snap and Reddit.
Financial Performance Overview
Revenue: Grew by 19% year-over-year to $40.6 billion.
Gross Margin: 82%, with an operating margin of 43%.
Operating Profit: FoA generated $21.8 billion in operating profit, while RL posted a loss of $4.4 billion.
Earnings Per Share (EPS): Increased by 37% year-over-year to $6.03.
Operating cash flow stood at $24.7 billion, showcasing Meta’s ability to generate cash even amidst heavy investments in AI.
The Future of Meta’s Apps: A Shift Towards AI
As we look ahead, the implications of Meta’s AI investments are profound. The company is not just enhancing user engagement; it is also redefining the content landscape.
Meta’s Orion AR Glasses: A Glimpse into the Future
Meta’s ambitious Orion AR glasses prototype aims to push beyond smartphones into the realm of augmented reality. While the technology is promising, with features like advanced AR displays and interactive AI capabilities, the high production costs currently hinder mass-market release.
Prototype Status: Currently, Orion is a prototype with around 1,000 units produced for demos and internal testing.
Cost: Estimated at $10,000 per unit, making it impractical for consumer release at this stage.
Despite these challenges, Meta’s vision for AR glasses reflects its ambition to lead the next computing wave. However, the competitive landscape is heating up, with Apple also making strides in the AR space.
AI’s Role in Engagement and Monetization
Meta is leveraging AI to enhance both user engagement and monetization strategies.
Engagement: The recommendation engine prioritizes relevant content, primarily video, to keep users engaged. AI refines these systems, maximizing user time spent on the platform.
Monetization: AI improves ad efficiency throughout the entire lifecycle, from creation to performance measurement. Tools like Meta AI Studio empower developers to create custom AI models, driving the next wave of consumer apps.
In Q3, Meta’s advertising revenue reached $39.9 billion, showcasing its ability to adapt and regain market share in a competitive landscape.
The Potential Death of the Creator Economy
As Meta shifts towards AI-generated content, the implications for individual creators could be significant. CEO Mark Zuckerberg hinted at a future where AI-generated or AI-summarized content becomes a new category on Meta’s platforms.
This shift could lead to a scenario where AI models dominate content creation, leaving individual creators struggling to compete. With 57% of Gen Z aspiring to become influencers, many may face a harsh reality as AI-generated content takes center stage.
The Financial Implications
While YouTube shares ad revenue with creators, Meta does not, meaning that AI-generated content could seamlessly integrate ads into algorithmic feeds without the cost of sharing revenue. This strategy could enhance ad impressions and conversions, further solidifying Meta’s financial position.
The Road Ahead
Meta’s journey into the AI-driven future is marked by significant investments and strategic shifts. As the company continues to innovate, the landscape of digital content and the creator economy will likely undergo profound changes.
With a focus on building engagement and adoption first, Meta is positioning itself to maximize returns in the long run. As the company navigates this transformative period, the implications for users, creators, and investors alike will be worth watching closely.
Stay healthy and invest on!
Author’s Note: The views and opinions expressed in this newsletter are solely my own and should not be considered financial advice or any other organization’s views.
