In 2023’s fourth quarter, Meta showcased remarkable growth in both sales and profits, marking a significant milestone for the tech giantThe surge can predominantly be attributed to the integration of artificial intelligence (AI) into its digital advertising landscapeDespite ongoing investments in its Metaverse division, particularly in Quest VR headsets and smart glasses, these ventures continued to report losses, albeit at a rate slightly better than anticipated.

This financial success comes against a backdrop of intensifying competition as emerging Chinese AI firms like DeepSeek challenge Meta’s dominance with their cost-effective open-source modelsIn response, Meta has pledged to increase its financial outlay this year, focusing on bolstering both AI and its core business operationsHowever, the company’s subdued guidance raised eyebrows; investors began to question whether the robust growth from its traditional “cash cow” digital advertising efforts would be sufficient to fund its future investments, particularly in AI and the Metaverse.

CEO Mark Zuckerberg took to the stage during the earnings call to defend Meta’s aggressive spending strategy

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He forecasted 2024 as a pivotal year for AI, asserting that Meta’s AI assistant could become the industry leader, potentially reaching over a billion users“I expect this year will see intelligent and personalized AI assistants covering more than a billion people,” Zuckerberg said confidently, indicating strong belief in Meta's AI capabilities.

On January 29, 2024, after the market closed, Meta released its financial results for the fourth quarter ending December 31, 2023, along with guidance for the first quarter and the entire year of 2025.

Key Financial Highlights

For the fourth quarter, Meta reported revenues of approximately $48.39 billion, which represented a 21% year-over-year growth and exceeded analyst expectations of $46.98 billionThis marked a notable acceleration from the 19% growth seen in the previous quarterThe earnings per share (EPS) rose significantly, with diluted EPS at $8.02, a staggering 50.5% increase compared to the prior year, outperforming the forecast of $6.78 from analysts.

Capital expenditures, encompassing principal payments on finance leases, soared to $14.84 billion, indicating an 87.8% increase year-over-year and exemplifying Meta’s commitment to investment

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In total, the capital expenditures for the year reached $39.23 billionOperating income also saw a robust growth of 43%, hitting $23.37 billion and surpassing analyst predictions of $20.09 billion.

The net profit for the quarter clocked in at $20.84 billion, a remarkable 49% growth compared to the previous year, which complemented the continuing trend of profitability.

Segment Performance

Drilling down into Meta's different business segments, advertising revenue alone was $46.78 billion for the quarter, reflecting a 21% increase year-over-yearFurthermore, revenues from the family of apps — which includes Facebook, Instagram, Messenger, WhatsApp, and others — reached $47.3 billion, also up by approximately 21% compared to the same quarter last year, exceeding the analyst consensus of $46.08 billionThe profitability of this segment was substantial, reporting $28.33 billion in operating profit, a growth of nearly 35% on an annual basis.

Conversely, Meta’s Reality Labs, the division focusing on augmented reality (AR) and virtual reality (VR) devices, generated revenue of $1.08 billion, reflecting only a 1% increase year-on-year, but also reported an operating loss of $4.97 billion

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The losses, however, were not as significant as analysts had predicted.

Future Guidance

Looking ahead, Meta provided guidance for the first quarter of 2025, projecting revenues between $39.5 billion and $41.8 billion, shy of analysts’ expectations for $41.67 billionIn terms of expenses for 2025, Meta estimates they will hit between $114 billion and $119 billion, exceeding analyst expectations as wellMoreover, the company anticipates capital expenditures will range between $60 billion and $65 billion, a notable increase from previous estimates.

Prior to the earnings report, Meta’s stock experienced a fluctuation in after-hours trading, initially dipping over 4% before recovering some losses following the earnings reportZuckerberg’s optimistic tone regarding the potential of the AI assistants initially drove the stock up over 5% after the announcement, reflecting investor sentiment about the company’s future in this area.

The impressive quarterly results underscored Meta’s growth, especially in its traditional advertising sector, where growth rates exceeding 20% have become uncommon in recent years

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The family of apps has also witnessed day-to-day user engagement rise to 3.35 billion, a 5% year-on-year increase, further emphasizing the strength of Meta’s digital ecosystem.

Despite Meta’s positivity surrounding the launch of Threads, a competitor to Twitter, the company refrained from disclosing exact user numbersNevertheless, Zuckerberg indicated that Threads is attracting over one million new users daily, with an ambitious target of reaching one billion users in the coming years.

The Competitive Landscape

As Meta navigates this evolving landscape, the emergence of DeepSeek has sparked discussions about investment returns in AIDespite industry accolades for DeepSeek, there is growing consensus in U.Spolitical, financial, and tech circles that it poses significant competition to Meta's own open-source Llama modelAnalysts have suggested that DeepSeek’s innovative strides could indicate Meta’s potential lag in the ongoing AI race.

During the earnings call, Zuckerberg acknowledged advancements in Meta’s Llama model, remarking that it has achieved “huge progress.” While competition remains fierce, Zuckerberg emphasized that the market holds promise for multiple AI applications to thrive simultaneously.

“Users want their AI to be personalized according to their environments, interests, personalities, cultures, and perspectives on the world