About the company

Meta Platforms has been transforming itself diligently over the past few years to position itself as a leader in virtual and augmented reality. Facebook Inc.'s rebranding in 2021 under the new Meta name was meant to signal the building of a "metaverse," a connected virtual world where users could interact, work and play. But that comes with considerable challenges. However, investments in virtual reality (VR) technologies have not yet yielded the desired results in terms of revenue. Moreover, Meta is under increasing regulatory pressure, especially in the EU, where GDPR and other data protection regulations complicate the traditional marketing model based on targeted advertising. That's also why the company is expanding its ad options beyond Facebook and Instagram, incorporating new tools to increase efficiency and privacy. It is trying to reduce its reliance on ads by experimenting with other revenue streams such as subscriptions, creating its own hardware, and developing its own AI chips and models.

The video generator Movie Gen is set to compete with OpenAI's Sore

Realistic videos generated by a written command in seconds were science fiction until recently. However, after the non-profit company OpenAI, best known as the creator of the unique ChatGPT, unveiled its Sora AI model for video creation, it took everyone's breath away. Since then, several similar generators have been created and are available with varying levels of quality. Most recently, Meta Platforms has joined the craze with its Movie Gen tool. The latter differs from the other programs in that it can create audio along with the video. Although it's not yet available to the general public, Meta has already shown off a few of its creations. The company has said that the product is unlikely to be freely available to developers in an effort to prevent the creation of misleading videos. However, this type of artificial intelligence creates endless possibilities, especially for filmmakers. Some Hollywood studios such as Lion's Gate Entertainment are already partnering up to offer their film studios to train AI models, and will also have the option to use them themselves when making films. Clearly, the demand for these technologies is only just beginning to take off.[1] [2]

Meta Connect has brought revolutionary news

At its Meta Connect conference, held on September 25-26, 2024, the company unveiled hardware innovations, including its latest VR headset, the Quest 3S, developed by its Reality Labs division. This headset is supposed to be a rival for Apple's Vision Pro, but at an incomparably lower price. Perhaps the prototype of the virtual reality glasses called Orion earned the most attention. This represents Meta's collaboration with the Ray-Ban brand. In fact, the device is almost completely different in appearance from classic glasses. Through voice commands, it will be possible to use WhatsApp, Instagram and Facebook apps with it, and its most notable feature is the real-time translator. It is not yet known when the Orion will be launched, but it is already clear that this is a breakthrough product.[3]

Shares have reached a new all-time high

Shares of Meta reached an all-time high of $602.95 as of October 7, 2024. The year 2024 has been an extremely successful one for the company, with its share price increasing by more than 83%.* With a market capitalization of $1.48 trillion, it is now the seventh most valuable publicly traded company in the world.* The company's value is built on a stable foundation of solid economic results and a positive outlook, not only in terms of revenue, but also in terms of product launches.[4]

Economic results

Meta achieved strong growth in both revenue and earnings in the second quarter of 2024 (the period from March 31 to June 30, 2024), exceeding market expectations. Total revenue reached $39.07 billion, an increase of 22.1 % year-on-year. Earnings per share reached $5.16 and net profit grew 73% to $13.47 billion.* Advertising remained a key segment, with revenue up 22 % to $38.33 billion. It is included in the revenue of Facebook, Instagram and WhatsApp, which together accounted for more than 99 % of total revenue. The Reality Labs segment, though still loss-making, grew 28%. Meta also expects total revenue in the third quarter to be in the range of $38.5 billion to $41 billion, signaling continued strong demand for ad space and AI solutions. The monetization initiative for enterprise app WhatsApp was also a significant contributor to revenue growth. At the same time, Meta stresses that the development of AI technologies and the metaverse remains its long-term priority. The third quarter earnings announcement is expected on October 30, 2024.[5]

Meta Platforms' share price development over the past 5 years. (Source: Google Finance)*

Regulatory challenges

Meta, along with other tech giants, has to face increasingly stringent regulations from the authorities, especially regarding fair competition, data privacy or other business practices. A recent ruling by the Court of Justice of the European Union orders companies to restrict the use of personal user data for targeted online advertising, as this data is intended primarily for internal purposes. This is being done at the behest of the plaintiff, Austrian activist Max Schrems, who was targeted for ads based on his own personal data provided to the company. Meta argued that it gives its users a number of choices and settings with which they can determine how their data is used.[1] [2] The company, still under the name Facebook Inc. at the time, was previously part of a major scandal involving, in particular, the leakage of user data and its sale to third parties.

Conclusion

Meta has long relied on ad revenue, mainly from Chinese companies, on its social networks. Although its Reality Labs division has already brought it products such as the Meta Quest VR headset or the Horizon Worlds virtual world, their consumer adoption has not yet crossed the threshold that would allow them to scale massively. In recent months, the markets have been in controversy over the return on the huge investments made by technology companies in AI development, with investors always keeping a close eye on even the slightest deviations in the segment's earnings and forecasts. The introduction of new products is an important step for the company as its investments in AI and virtual reality are starting to yield tangible results with the potential to become a commercial product for a broad user base. [1]

Adam Austera, Principal Analyst at Ozios

* Past performance is no guarantee of future results.

[1] Forward-looking statements are based on assumptions and current expectations, which may be inaccurate, or on the current economic environment, which may change. Such statements are not guarantees of future performance. They involve risks and other uncertainties that are difficult to predict. Results may differ materially from those expressed or implied by any forward-looking statements.

[1] https://noyb.eu/en/cjeu-meta-must-minimise-use-personal-data-ads

[2] https://www.investing.com/news/stock-market-news/eu-top-court-sides-with-activist-schrems-in-privacy-dispute-with-meta-3648729

[1] https://www.theverge.com/2024/10/4/24261990/meta-movie-gen-ai-video-generator-openai-sora

[2] https://www.investing.com/news/economy-news/meta-challenging-openai-announces-new-ai-model-that-can-generate-video-with-sound-3652084

[3] https://www.investing.com/news/stock-market-news/analysts-weigh-in-as-meta-unveils-ar-glasses-prototype-new-vr-headset-3633409

[4] https://companiesmarketcap.com/

[5] https://s21.q4cdn.com/399680738/files/doc_financials/2024/q2/Meta-06-30-2024-Exhibit-99-1_Final.pdf