Meta Q4 2024 Earnings Preview: A Tale of AI and Ads

Key points:

• Strong Expectations Amid Challenges: Meta is projected to deliver Q4 2024 revenue growth of 17%-20% and a 27% rise in EPS, driven by AI-powered advertising and higher engagement. However, rising competition from DeepSeek and mounting regulatory pressures pose significant risks.
• DeepSeek Disruption: The emergence of Chinese AI firm DeepSeek, offering cost-efficient models, has rattled markets and raised questions about the high-cost AI infrastructure investments of U.S. tech giants like Meta.
• Capex and Strategic Outlook: Meta’s massive USD 60–65 billion AI-focused capex plan for 2025 highlights its ambitions, but investors will closely assess the ROI potential and the company’s response to intensifying competition.

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Meta Platforms is set to release its Q4 2024 earnings on 29 January 2025, after market close. With heavy investments in artificial intelligence (AI), continued dominance in advertising, and challenges posed by new competitors like DeepSeek, the report is expected to be a critical moment for investors.

Up 45% over the past year, Meta’s share price has enjoyed a remarkable run in 2024, reflecting investor confidence in its AI-driven growth and advertising prowess. Despite its impressive growth, Meta’s valuation is being closely watched, and the stock trades at a premium, suggesting high expectations. Any surprises – positive or negative – could prompt significant market moves.

Here’s what investors should know as we approach this critical update.

What’s Expected in Q4 2024?

Analysts anticipate another strong quarter for Meta, with forecasts showing:

• Revenue: USD 45-48 billion, reflecting year-on-year growth of 17%-20%.
• Earnings Per Share (EPS): USD 6.75, a 27% increase compared to Q4 2023.
• Advertising Revenue: Expected to remain dominant, accounting for 98% of total revenue, supported by AI-powered tools and higher ad pricing.

These results will be closely scrutinised in light of Meta’s USD 60–65 billion capital expenditure (capex) plan for 2025, much of it focused on AI infrastructure, and the rising competition from DeepSeek.

Key Drivers Behind the Numbers

AI-Powered Advertising: Meta’s investments in AI are reshaping the digital advertising landscape:

• Tools like Advantage+ and generative AI enable advertisers to create highly targeted and effective campaigns, boosting return on ad spend.
• Ad impressions increased by 7% year-on-year, while average ad prices rose by 11%.
• Over a million businesses used Meta’s generative AI tools to produce 15 million ads in a single month, driving a 7% uplift in conversions.

User Engagement Growth: With 3.29 billion daily active users—a 5% year-on-year increase—Meta’s platforms remain central to global digital activity. AI-enhanced recommendations are driving higher engagement, particularly for video content, boosting ad opportunities.

Cost Efficiency: Meta’s “Year of Efficiency” programme has stabilised costs while enabling significant investments in AI infrastructure and metaverse-related innovations, contributing to improved margins.

 

Challenges to Consider

Reality Labs Losses: Meta’s metaverse division is expected to report a USD 5 billion loss for Q4. While the long-term potential is promising, Reality Labs continues to weigh on profitability.

Regulatory Scrutiny: The European Union’s Digital Markets Act and other global privacy regulations are pressuring Meta’s data-driven ad model. Compliance costs and potential fines could pose risks to future earnings.

Rising Competition: Rival platforms like TikTok, Google, and Amazon are vying for market share. TikTok’s dominance among younger users, in particular, threatens Meta’s growth trajectory in key demographics.

DeepSeek: The emergence of DeepSeek, a Chinese AI firm, has disrupted global markets, raising questions about the high-cost AI infrastructure investments of U.S. tech giants like Meta. DeepSeek’s cost-effective AI models, which run on less advanced chips, challenge the necessity of Meta’s massive AI spending. These models have introduced a new level of competition, casting doubt on the return on investment for Meta’s planned USD 60–65 billion capex in 2025.

Opportunities on the Horizon

Generative AI Expansion: Meta is just beginning to unlock the potential of generative AI. Beyond ad creation, these tools could open new revenue streams in content production, immersive experiences, and user engagement.

Social Commerce Growth: Facebook Shops and Instagram Shopping are tapping into the growing trend of social commerce, integrating seamless purchasing experiences with social engagement. This area is expected to generate significant growth in the coming years.

Emerging Markets: Advertising revenue growth in regions like Asia and Latin America is accelerating, supported by increased internet adoption and rising economic activity. These markets represent key drivers of Meta’s long-term success.

Capital Expenditures: A Defining Year for AI

Meta’s capex plans for 2025 include investments in cutting-edge AI infrastructure, such as a 2-gigawatt data centre and over 1.3 million graphics processors. While these investments position Meta as a leader in AI, competition from cost-efficient solutions like DeepSeek raises questions about whether such high spending is necessary.

 

What Should Investors Watch?

As we approach Meta’s earnings release, here are the key areas to monitor:

• Reality Labs Strategy: Investors will look for clarity on plans to reduce losses and achieve profitability in its metaverse initiatives.
• AI Monetisation: Updates on how much of Meta’s growth is being driven by AI innovations.
• Regulatory Impact: Commentary on how the company is navigating global regulatory challenges and their effect on advertising revenue.
• Capital Expenditures: With rising investments in AI infrastructure, what kind of return on investment is Meta projecting?
• Response to DeepSeek: How does Meta plan to address the rising competition from cost-efficient AI models?

The Bottom Line

Meta’s Q4 2024 earnings are likely to showcase strong financial results, underpinned by AI-driven advertising growth and operational efficiencies. However, challenges such as regulatory scrutiny, competitive pressures, and ongoing metaverse losses should not be overlooked.

For investors, this earnings report is more than just a quarterly update—it’s a critical opportunity to evaluate Meta’s position in an increasingly competitive AI landscape.