Proactive Investors - Can we quantify just how comprehensively Mark Zuckerberg has steered his social media behemoth Meta Platforms Inc (NASDAQ:META, ETR:FB2A, SWX:FB) away from his metaverse ambitions in favour of the alluring world of artificial intelligence?
Perhaps.
Using the highly scientific method of hitting ctrl+F on Meta’s earnings call transcript plus follow-up call transcript, we can see 107 instances of ‘AI’ being mentioned.
As for ‘metaverse’? The term was uttered a lowly four times.
Furthermore, this robust scientific analysis doesn’t even take into account other AI-adjacent terms like ‘Llama’ (Meta’s large-language AI model, mentioned 37 times). And to be fair, metaverse-adjacent terms like ‘AR’ (mentioned thrice) and ‘Reality Labs’ (mentioned a dozen times) were also excluded.
The metaverse, which Zuck labelled “our other long-term focus”, was primarily discussed in the context of AI.
He said: “Last quarter I discussed how advances in AI have pulled in the timelines for some of our products. A few years ago I would have predicted that holographic AR would be possible before smart AI, but now it looks like those technologies will actually be ready in the
opposite order.”
It paints a picture of Zuck quite comprehensively pivoting away from a metaverse vision once so potent that he completely rebranded the company to fit this vision just three years ago.
Comments from Dan Coatsworth, as investment analyst at AJ Bell, supported this scientific analysis: “Mark Zuckerberg might have been obsessed with the metaverse for a long time, but cementing the company’s position at the top of the AI tree is now his priority.
“He is confident Meta AI will become the world’s most-used AI assistant by the end of the year.
“Zuckerberg might be able to grab the top spot but it will be a hard fight to stop others from overtaking the company as there are plenty of contenders eager to take the crown.”
Fickle or not, the fact that Meta has swiftly and comprehensively steered its focus and capital expenditure toward AI is not really surprising.
In Meta’s AI vision, you’re the product
For the most part, Meta née Facebook (NASDAQ:META) has never been in the business of selling products to its user base; rather, the user base has been the product.
Whether through advertising engagement or the more insidious practice of bundling and selling your data off to third parties, Facebook, Instagram and more recently Threads are free because your engagement is the commodity.
In this regard, the metaverse was an outlier in Meta's pantheon of digital platforms, given the hundreds of dollars worth of hardware required to engage in it.
AI, however, represents a natural evolution of Meta's tried-and-tested business model. Because with AI, Meta is able to supercharge the optimisation of its content feed algorithms to ensure end-user engagement is as high as ever.
As Coatsworth explained: “What separates Meta from the crowd is that it already has proof that AI is supporting the business. AI has helped its social media platforms to better predict the type of video content that will keep viewers engaged.
“The more time people spend scrolling social media posts on places like Instagram and Facebook, the more adverts they can be served and the more advertising income that goes into Meta’s pockets.
"That explains why advertising impressions jumped by a lot in the period. It also helped that the average price per advert went up.”
It has probably also helped that advertisers have freed their budgets up since leaving Twitter/X after Elon Musk told them to go f**k themselves.
Does it matter?
Stakeholders would be right to bristle at the fact that Meta has thrown tens of billions of dollars at the metaverse only for it to fall out of favour in place of sexier new AI opportunities.
Especially since metaverse-related revenues are a mere rounding error in the grander scheme of things.
In the six months to June 30, Meta’s Reality Labs accounting line (which incorporates all virtual, augmented, and mixed reality-related consumer hardware, software, and content) brought in $793 million.
This represents a decent year-on-year growth of nearly 30%, but is still just 1% of total group-wide revenues.
Reality Labs will, at least for the observable future, remain a significant lossmaker.
In chief finance officer Susan Li’s words: “For Reality Labs, we continue to expect 2024 operating losses to increase meaningfully year-over-year due to our ongoing product development efforts and investments to further scale our ecosystem.”
As Meta continues to build out its AI infrastructure, capital expenditure obligations are only set to increase.
Li expects full-year capex to be in the range of $37-40 billion, up from previous guidance of $35-$40 billion.
“While we continue to refine our plans for next year, we currently expect significant capital expenditures growth in 2025 as we invest to support our artificial intelligence research and product development efforts,” she added.
But does it really matter what Meta spends its money on, or what shiny news buzzword Zuck is interested in?
Basic earnings per share in the past six months nearly doubled from the same period last year and second-quarter earnings smashed expectations.
Meta’s share price is poised to rally 6.3% this Thursday, thus adding another $75.6 billion of value to a stock that is already up 37% year to date.