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Meta third quarter earnings per share coming in at 603 that beats estimates. Ad revenue also beat for the third quarter coming in at 39.89 billion. Joining us now is Aaron Kessler, senior analyst of Internet at Seaport Research Partners. Aaron, it is great to see you and have you on the show. So, uh, let me get your reaction. So Meta prints stocks balancing around here, Aaron. We did just take a bit of a leg lower, we're down about 2 and 1/2%, but give me your your reaction to the print, Aaron.

Yeah, so I would say in contrast to maybe Google or Alphabet, obviously expectations were relatively high for meta given the strength we've seen in the last couple of quarters. Obviously, year to date, the stock's been up significantly over the last 12 months here. So, the results were basically in line with my expectations. I think slightly above the street, but given how strong the stock has been, not surprised to see it down a little bit. In terms of the guidance, um, I do think they hit the number at 48 billion on the high end for Q4 that investors were looking for for revenues. Um, so I think that's a positive if they can do that 48 billion. Um, but yeah, just given how strong the stock has been, uh, not surprised to see it down a little bit here after hours.

Um, I'm looking at ad impressions here. They talked about ad impressions across all of their apps up 7% year of year, and I know there's been a lot of discussion about how they're using AI in the ad offering. Talk just a little bit about that and and whether you think Meta is doing maybe a better job than some of its competitors in that area.

Yeah, so there's two ways they're kind of leveraging their AI. One is going to be for internal purposes, and I think they've done a good job there. They've been able to automate a lot of the advertising for advertisers, and I think you've seen that in the results they've talked about that, um, how it becomes more self-service for a lot of their SMB customers, and that helps drive revenues at the end of the day. Second part is more probably longer term in terms of some of their generative AI initiatives, and there they may compete with some of the other hyperscalers as well. But there I think we're still very early. Um, it'll be interesting to see if longer term, Meta decides to charge for some of these services. But yeah, I would say on that part, they're still fairly early in terms of offering any type of commercialized generative AI offering at this point.

Aaron, let's talk capex for a second. They they see full year capex 38 to 40 billion, Aaron. Uh, they do see, uh, what they call significant capital expenditure growth. It looks like in 2025. What what are you modeling in terms of capex, Aaron?

Yeah, so we've been modeling about 38 billion for 2024, so I guess that's kind of the low end. Um, for 2025, we've been modeling about 48 billion in capex. So, roughly 25% growth. So, fairly significant growth, which is kind of um, if you take the second half capex for 2024, that's kind of the run rate, uh, in 25. I think the interesting thing is from Google, you saw capex has been relatively flattish this year. So, um, it'll be interesting if they quantify 25 on the call a little bit more than what the other hyperscalers say, um, when we see AWS tomorrow and Microsoft says today. But uh, yeah, I think that'll be important in terms of both for the uh, hyperscalers as well as some of the connector companies.

Um, you just heard us talking a little bit about reality labs too. Uh, the company had operating losses in reality labs at 4.43 billion dollars, which is a little bit better than the consensus estimate, although revenue there I believe was a little bit uh worse than estimated. Um, you know, we were also talking about how at a certain point the street was not terribly happy about reality labs and the money that Meta was putting into it. Um, do we see that kind of displeasure return or no, as long as the rest of the businesses are chugging along?

Yeah, I think it's more the latter. As long as they're showing strong top line growth on the ad side, and as long as they're not seeing significant losses increase on the reality labs, we're looking for about 18 billion of losses this year. Last year was about 16 billion. So, while they say it's a significant increase, I mean, it's about a 10% increase from what we're looking for. Um, we would like to see obviously that loss come down at some point closer to 10 billion, which would still enable them to invest, but we're not expecting that anytime soon.

Uh, let me, Aaron, just to come back to this point. It does look like spending guidance could be weighing on the shares here. I'm just curious, listen, to to those who would be skeptical about that as a bull on the stock, you say what?

Yeah, now, I would say as long as that spending is generating strong top line growth which we're continuing to see, um, we think that's a positive. I think with the stock down a little bit, maybe it's reflection, maybe not as much revenue upside as investors would have liked to have seen in Q3, but uh, we're still looking for fairly solid revenue growth going into 25. So, that's when it becomes an issue though, is if they're still spending aggressively and growth has slowed. Uh, haven't really seen a significant slowdown in revenues at this point though.

Uh, Aaron, there was a report, um, from the information that Meta was working on developing an in-house AI powered search engine, uh, to sort of be less reliant on the dominant companies like Google. Um, does that make sense do you think for Meta? Do you think we learn anything more about that on the call today for example?

Yeah, I think given their investments in their LLM with llama and the generative AI investments, we don't think it's that much of a stretch for them to make a search engine. We don't think it's going to be a direct competitor to Google per se, um, but it, we don't think it's that much of a stretch given some of the investments they've made over the last couple years to create a search engine for users that are on Meta already.

Aaron, great to have you on the show. Appreciate that instant analysis, my friend.

Great, thank you Josh.