This topic discusses the upcoming Q4 2024 Meta Platforms earnings. It will include our final assessment and decision before the earnings release. We will also summarize the results here. You can find our earnings preparation and full summary of the results in the Wiki:
Tinuti Digital Ads Benchmark report signals a strong Q4 for Meta
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Ad spent on Meta Platforms by Tinuiti advertisers rose 15% y/y in Q4 2024 (Q3 2024: +9% y/y) aided by softer comps, CPM grew 5% y/y (Q3 2024: -3% y/y) while impression growth slowed to 9% from 12% in Q3 2024.
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Ad spend on Facebook rose to 11% in Q4 from 5% in Q3 also aided by softer comps, CPM was out of red during the quarter as it was flat-the first time since Q3 2022, impression rose 11% y/y (Q3 2024: +20% y/y).
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Spend on Instagram ads jumped 20% y/y in Q4 from 14% in Q3 despite tougher comps, CPM was up 15% y/y (Q3 2024: +19% y/y) while impression rose 5% y/y (Q3 2024: -4% y/y).
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Despite Advantage+ Shopping campaign spend holding steady (accounted for 34% of retailers’ ad spend on Meta), advertisers experienced issues with it during the quarter.
"Some advertisers experienced periods of under or over-delivery in Q4 that couldn’t be explained. As such, some advertisers are reassessing their investment in ASCs, and Meta itself has backed off of recommending advertisers put all conversion focused ad spend into the campaign type, " Tinuiti pointed out.
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Ad spend growth on TikTok decelerated from 28% in Q3 to 13% in Q4, largely due to very tough comps- advertisers were largely unmoved by uncertainty on TikTok ban, CPM was up 8% y/y (Q3 2024: +14% y/y) while impression grew 4% (Q3 2024: +12% y/y).
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Ad spend on Google Search rose 10% y/y (Q3 2024: +11% y/y), click through rate (CTR) rose 1% compared to flat growth in Q3 while cost per click (CPC) was up 9% (Q3 2024: +8%).
Assessment
In the most recent four quarters, Meta revenue outperformed Tinuiti Meta ad revenue by an average of 11.22%. Therefore, it’s likely that Q4 will be another strong quarter for Meta.
It’s not good to hear issues with Advantage+ shopping given that it brings significant revenue to Meta. Also, the problems could signal that GenAI may be interfering with the core AI.
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I am positive on Meta’s Q4 2024 earnings. My estimates take into account robust advertising trends, reports of continued strength in daily active users, potential benefits of AI, and the fact that the company has beaten management’s upper revenue guidance by an average of 2.5% in the latest three quarters.
I am positive on Q4 earnings due to the following;
- Robust ad spend: Magna recently upgraded their forecast for 2024 ad spend growth rate on social media players to 17.9% from 17.5%. Similarly, Group M raised US ad revenue growth rate forecast for 2024 to 9% from 5.8% in December. This upward revisions suggest a better-than expected performance in Q4.
- Tinuiti report: Ad spent among Tinuiti advertisers on Meta Platforms was up 15% y/y during the quarter. Similarly, CPM was up 5% y/y, a shift from the negative decline witnessed in Q3. Given that Meta revenue outperformed Tinuiti Meta ad revenue by an average of 11.22% in the latest three quarters, we are likely to see another strong quarter for Meta.
- Revealbot data on CPM: Revealbot data indicates that Instagram’s CPM rose by around 21.8% quarter over quarter and 32.0% year over year in Q4 to an average of $14.46. Similarly, Facebook CPM was up by around 32.1% quarter over quarter and 32.1% year over year to an average of $14.35 during the quarter.
- Uncertainty on TikTok’s availability in the US. On Jan.19, the law banning TikTok in the US came into effect. Although, President Trump signed an executive order allowing the TikTok to continue operating for another 75 days, there is uncertainty over the legality of the order. Similarly, Trump is lobbying for a joint ownership of TikTok between US and China, which could potentially lower the performance of the app since the algorithm is likely to remain with its parent, Bytedance. These uncertainties could have caused a number of advertisers to shift to the likes of Meta. However, the real benefits of these uncertainties are likely to be felt in 2025.
- Year of intensity: While Meta continues to spend heavily on AI, the management remain committed to its efficiency programs. For instance, the company recently announced that it will layoff 5% of low performing employees as it prepares for a “year of intensity”. While they will replace these low performers, the program will ensure the company operates at an optimal level. Also, the news on Deepseek R1 having been developed within 2 months at a cost of $6 million dollars will embolden the company to be more efficient.
- Strength in daily active users: According to Visible Alpha, analysts estimates for Meta’s Q4 2024 Family of Apps revenue have remained largely unchanged since October due to continued strength in daily active users.
- Analysts are bullish on the quarter: Most analysts are bullish on Meta’s Q4 earnings. Reasons cited include robust ad spending, continued growth in Meta’s share of ad revenue, and continued growth in engagement across Meta Platforms.
- Facebook’s video unification efforts are paying off: Sensor Tower pointed out that time spent on Reels in December 2024 rose 17% from January 2024, indicating that millions of engagement hours are moving to the feature over the period in which Facebook’s unification efforts began.
Risks during the quarter and in 2025 guidance include;
- Rising capex and total expenses: Meta recently announced that it will spend $60-$65 billion in capex in 2025, much higher than the $52 billion that analysts were expecting. Investors will be looking forward to hear more insights on how the company is benefitting from this huge investments. For instance, they will want to hear more about the announced AI Engineer and how the core business is benefitting from AI. If the investors are not satisfied, the stock could fall sharply.
- FX headwinds: Over the past three months, the US dollar index has appreciated by about 6% versus its average trading level in 2024. If the trend continues in 2025, it could lead to an headwind of around $4 billion, based on Meta’s 2023 advertising revenue outside US of about $70 billion (53% of $132 billion). The impact on Q4 2024 results is likely to be less though.
- Strong comps: Meta’s Q4 2023 revenue had grown 24.7%, hence the benefits of weak comps is unlikely to be felt in Q4 2024.
- Issues with Advantage+: Meta’s Advantage+ has been one of the most powerful tools for advertisers. In fact it was said to have helped the company overcome the headwinds caused by Apple’s privacy changes in 2021. However, reports by Tinuiti and others that it’s having issues is not good for the company’s return on ads spend.
Here are management’s and analysts’ expectations;
Management Guidance for Q4 (Revenue): $45.0-$48.0 billion (+12.2% to +19.7%)
Analysts’ Estimate for Q4 (Revenue): $46.97 billion (+17.1%)
Analysts’ Estimate for Q4 (EPS): $6.73 (+26.3%)
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Meta beats all the key KPIs in Q4, guides for lower than expected Q1 revenue
- Meta Q4 2024 revenue rose 20.6% y/y to $48.39 billion, above management’s upper guidance of $48.0 billion and analysts estimate of $46.97 billion, EPS came in at $8.02 versus analyst estimate of $6.73 while operating margin of 48% exceeded analysts estimate of 43%.
- Family daily active people (DAP) grew 5% y/y to 3.35 billion, above analysts estimate of 3.33 billion, ad impressions rose 6% y/y (analysts estimate: +10.1%) while average price per ad increased 14% y/y (analysts estimate: +7%).
- Meta’s capital expenditures during the quarter was $14.84 billion, lower than analysts estimate of $15.43 billion.
- Meta is guiding Q1 2025 revenue in the range of $39.5-41.8 billion (analysts estimate: $41.79 billion)-which assumes FX headwind of around 3% on y/y revenue growth and reflecting lapping leap day in Q1 2024, 2025 total expenses in the range of $114-119 billion (analysts estimate: $111 billion)- driven mostly by infrastructure costs (higher operating expenses and depreciation).
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Here are the main takeaways from Meta’s Q4 2024 earnings call:
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CEO Mark Zuckerberg said he believes 2025 to be the year when it will become possible to build an AI engineering agent that has coding and problem-solving abilities of a mid-level engineer, an historic milestone that over time can be a very large market though their extensive usage could come in 2026 and beyond.
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Zuckerberg said it’s too early to have a strong opinion on the trajectory of infrastructure and Capex following DeepSeek’s news but he thinks that investing heavily on them is going to be a strategic advantage over time. He thinks that the cost of Ai might shift in future from pre-training the model to inference. He also noted that they will implement AI in their core products ( feeds and ad products) which are used by billions of people, and that will be costly.
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CFO Susan Li said advertising demand remains strong.
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Li said the adoption of Advantage+ shopping campaigns continues to grow.
“Adoption of Advantage+ shopping campaigns continues to scale, with revenue surpassing a $20 billion annual run-rate and growing 70% year-over-year in Q4,” she said.
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Li said growth in ad impressions was mainly driven by Asia-Pacific.
Assessment of Meta’s earnings
Q4 was another solid quarter for Meta. In my opinion, the lower than expected revenue guidance for Q1 shouldn’t be a concern since it’s something outside the company’s influence. We were already expecting such a scenario as well.
Li’s comment that Advantage+ shopping is doing very well is a relieve given the earlier reports that said Meta was backing off from it due to some issues.
I didn’t like that ad impression growth was mainly driven by Asia-pacific and not high monetizing regions such as Europe and the US. Also, in my opinion, Zuckerberg in his comments, seemed to underestimate the potential of already existing AI agents such as the Open AI’s Operator.
Overall, the company’s trajectory continues to impress. Spending on capex and total expenses could be an headwind in the short-term, but I have always liked that these AI spendings also support the core business. I also liked that Zuckerberg seemed more confident about 2025, saying that this is the year when trajectory of most of their long-term investments will become clearer.
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Here are the analysts commentaries following the earnings:
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Strong Buy, $725->800: Raymond James said Meta’s commentary indicates a “Big year” of AI progress. Sees a $50+ billion run-rate opportunity.
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Buy, $700->$800: DA Davidson said the management expects 2025 to be a defining year for AI ambitions. Said Family of Apps strengthened during the quarter.
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Buy, $660->$730: Roth MKM pointed out that Zuckerberg sounded enthusiastic on the planned AI investments, adding that the company is investing from a position of strength.
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Overweight, $725: JPMorgan said Meta’s heavy investments will be strategic advantages over time, expects 2025 and 2026 earnings estimates to come down.
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Buy, $692->$740: Stifel remains positive on the health of digital ads market and expects it to drive better-than expected revenue growth throughout 2025.
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Buy, $710->$765: BoFA said Meta has a history of guiding capex conservatively and then lowering spend in lower growth years.
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Buy, $753-$780: Citi said Q4 results strengthened their view that Meta has a strong product and that they expect open source to create a significant opportunity.
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Overweight, $685->$752: Wells Fargo cited better than expected Q4/Q1 guidance.
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Outperform, $700->$770: Wedbush expects investors to look beyond FX headwinds, added that Q1 revenue guidance was in line with consensus on FX-neutral basis.
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Outperform, $650->$800: Oppenheimer acknowledged risk to out-year revenue estimates, pointing to estimates which imply share gains of 110 bps through 2027 versus 150 bps between 2023-2024.
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Overweight, $670->$775: Piper Sandler pointed out that the management sounded more energized about core platform improvements and new AI products.
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Outperform, $685->$800: Bernstein notes that revenue growth was once again driven by pricing though management expects durability of revenue growth in 2025, driven by Advantage+.
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Outperform, $680-$750: Baird pointed out that Zuckerberg offered an “Upbeat commentary” on the company’s competitive positioning with regards to AI.
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Overweight, $630->$705: Barclays said for the first time in two years, Meta’s investments in AI is starting to weigh on earnings, which may stop the stock’s upside temporarily.
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Outperform, $675->$750: Mizuho said the management’s tone was very optimistic with regards to product developments and monetization of AI products.
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Buy, $800->$875: Pivotal Research believes Meta will be the largest beneficiary of DeepSeek’s open source strategy.
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Just adding a minor point:
There was a favorable one-time G&A impact of $1.55 billion due to “a decrease in the accrued losses for certain legal proceedings” in Q4 2024. Based on 2.599 billion diluted outstanding shares this lead to a positive one time effect of $0.60 per share. Without this impact, EPS would have been $7.42, and the operating margin would be accordingly lower.
It’s indeed positive that they believe advantage+ is working well and they are even running experiments with turning it on from the beginning due to that.
I talked to an U.S. e-commerce advertiser who is running a yearly million dollar ad budget on Meta and he said it did not deliver for them but this is anecdotal evidence and could vary between different product categories.
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