Q2 revenue was $47.8 billion, up 6.2% YoY; Adjusted EBIT was $2.8 billion, down 26.3% YoY, the previous analyst expectation was a YoY decline of 1.8% to $3.73 billion. Q2 adjusted EPS was $0.47, down 34.7% YoY, much lower than expected, reflecting the serious drag on company profits caused by warranty costs as auto market growth slows. $Meta Platforms (META.US)$Revenue and profit were both higher than expected, with capital expenditures for the quarter lower than expected. The upper limit of the annual capital expenditure range was not raised, and guidance for total annual expenses was not revised upwards. The midpoint of the guidance range for Q3 revenue exceeded market expectations.

Meta, a social media and digital advertising giant that is betting heavily on AI and the "metaverse" platform, released its Q2 2024 earnings report on Wednesday, July 31 after-market trading.

1) Main financial data

Quarterly revenue: up 22% year-over-year to $39.07 billion, higher than the market's expected $38.34 billion.

Diluted EPS per share: year-on-year increase of 73% to $5.16, higher than market expectations of $4.74.

Capital expenditures: including principal payments for financing leases, it was $8.47 billion, 26% higher on a month-to-month basis, but lower than the market's expected $9.5 billion.

Total costs and expenses: up 7% year-over-year to $24.22 billion, including $1.4 billion in settlement fees with the US state of Texas.

Operating profit: up 58% year-over-year to $14.85 billion, higher than the market's expected $14.59 billion. The operating profit margin increased from 29% in the same period last year to 38%.

2) Outlook

Third-quarter revenue: expected to be between $38.5 billion and $41 billion, with a midpoint of $39.75 billion, higher than the market's expected $39.16 billion.

2024 annual capital expenditure: expected to be between $37 billion and $40 billion, up from the previous estimate of $35 billion to $40 billion.

2024 annual total expenditure: still expected to be between $96 billion and $99 billion, consistent with previous guidance, with analysts forecasting $97.73 billion.

3) Business segment data Data center business unit: revenue reached a record high of $2.8 billion, up 115% YoY and 21% QoQ. Client business unit: revenue was $1.5 billion, up 49% YoY and 9% QoQ. Gaming business unit: revenue was $0.648 billion, down 59% YoY and 30% QoQ. Embedded business unit: revenue was $0.861 billion, down 41% YoY and up 2% QoQ.

Application Family: Income increased by 22% year-over-year to $38.72 billion, higher than the market's expected $37.76 billion; operating profit was $19.34 billion, higher than the expected $18.69 billion. The daily active user (DAU) of each application family increased by 7% year-over-year to 3.27 billion.

Core advertising revenue increased 21.7% year-on-year to $38.33 billion, higher than market expectations but lower than the nearly 27% year-on-year growth in the first quarter, accounting for about 98% of total revenue.

The "metaverse" Reality Lab: revenue of 0.353 billion US dollars, a year-on-year increase of nearly 28%, lower than the market's expected 0.377 billion US dollars. Operating losses were 4.49 billion US dollars, compared with a loss of 3.74 billion US dollars in the same period last year, and the market expected a loss of 4.53 billion US dollars. It has accumulated losses of about 50 billion US dollars since the end of 2020.

4) Capital Return

The share buyback was $6.32 billion in Class A ordinary shares, and the dividend payment was $1.27 billion.

Cash and cash equivalents and securities: as of June 30, 2024, it was $58.08 billion, with a free cash flow of $10.9 billion.

Due to Meta's revenue and profit being higher than expected in the second quarter, there was no further upward adjustment of the upper limit of the range of annual capital expenditures. The guidance for total expenditure for the year has not been further raised, and the midpoint of the guidance range for third-quarter income exceeded market expectations, resulting in an after-hours rise of nearly 7%.

Although Meta has fallen more than 12% from its historical high on July 5 and its stock price has fallen to the level of May, Wall Street's consensus rating for it is "strong buy." Among 27 analysts, 23 recommended "buy," and only 2 recommended "sell." The average target stock price is $550, representing a potential increase of about 16%.

Recently, the decline in stock prices has led to a relatively low valuation for Meta, with a P/E ratio of 20 times the expected EPS of $23.20 per share in 2025, far below the Nasdaq 100 index's P/E ratio of 25 times. Analyst Brian Nowak of Morgan Stanley sees the stock's performance after the earnings report as bullish.

Meta's revenue has increased by more than 20% year-on-year for four consecutive quarters, and the lower limit of the range of annual capital expenditures has been raised by 2 billion USD.

According to some analysts, this is the fourth consecutive quarter of total revenue growth for Meta, with a year-on-year growth rate of more than 20%, which far exceeds the 11% growth rate in the same period last year. At that time, it was the quarter with a significant rebound in revenue growth after the epidemic first appeared.

Although the total revenue growth in the second quarter was weaker than the 27% year-on-year increase in the first quarter, the total amount increased by 7% on a month-on-month basis, and the EPS was significantly higher than the 4.71 US dollars in the first quarter, both of which demonstrated certain achievements in AI investment.

The most concerned indicator on Wall Street is the capital expenditure including AI investment. The market originally expected that Meta's second-quarter capital expenditure would increase by about 50% year-on-year to 9.5 billion US dollars, which would make the capital expenditure for the entire year of 2024 reach nearly 38 billion US dollars.

When the first quarter report was released in late April, Meta raised this year's capital expenditures to between 35 billion and 40 billion US dollars, which was an increase of up to 42% year-on-year. Wall Street was worried that huge investment had not yet achieved significant returns in revenue and profit growth, which caused the stock price to fall by 15% after the financial report.

The latest second quarter report shows that Meta has raised the lower limit of the range of annual capital expenditures by 2 billion US dollars, while the upper limit of the range remains unchanged, which to some extent alleviates investors' panic about uncontrolled growth of capital expenditures.

The company stated in its financial report that it continues to expect that Reality Lab's operating losses will "substantially increase" year-on-year in 2024, due to continued investment in product development and further expansion of the ecosystem, and "infrastructure costs are expected to be an important driving factor for expenditure growth in 2025, and capital expenditures in 2025 will also increase significantly because investment will support AI research and product development work".

"By the end of this year, Meta AI is expected to be the most widely used artificial intelligence assistant in the world," said Meta CEO Zuckerberg. "We have released the first cutting-edge open source artificial intelligence model, and the Ray-Ban Meta AI glasses continue to receive widespread attention, and the family of applications has also achieved good growth."

Other highlights of the financial report include: a year-on-year decrease of 1% to 70,799 employees worldwide as of the end of June. Ad impressions and average unit prices of the family of applications, including Facebook, Instagram, WhatsApp and Messenger, increased by 10% year-on-year in the second quarter:

In addition, we will continue to pay attention to the active regulatory environment, including the increasingly legal and regulatory resistance in the European Union and the United States, which may have a significant impact on our business and financial performance.

Editor/Somer