Despite multi-billion dollar lawsuits and litigation, Meta demonstrates impressive revenue growth, especially in the third quarter. How does the company manage to stay afloat and even thrive amidst such financial challenges? The answer lies in strategic investments in artificial intelligence, which is becoming a key driver of Meta’s advertising revenue growth, even when new products like Muse are not yet profitable. Let’s delve into the details of this phenomenal success and learn how Meta uses AI to optimize its advertising platforms.
Meta: 26% revenue growth despite Muse’s unprofitability and AI’s influence
Meta has had a challenging year, marked by multi-billion dollar lawsuits and litigation. One of them, related to the harmful effects of social networks on children, led to an $18 billion settlement. Another lawsuit, concerning data privacy violations, resulted in an order to pay the state of New Mexico $25 billion. This decision was made hours before Meta’s third-quarter report, and the company has already stated its intention to appeal it.
Despite these legal battles, the third quarter was strong for Meta. Revenue from the family of apps grew by 26% year-over-year, reaching $64.2 billion. Of this amount, $63.1 billion came from advertising revenue. The number of ad impressions also increased by 10%.
Muse: Popularity without Profit
Weeks after Muse’s launch in early September, Meta introduced Muse for small businesses. This is a “new set of skills and connectors” within the Muse app that helps companies find customers, analyze ad effectiveness, optimize it, and develop campaigns, as Meta CFO Susan Li told investors.
From a consumer perspective, the launch of Muse was “one of the most successful launches in the company’s history,” according to Meta CEO Mark Zuckerberg. This claim may be debatable given the privacy concerns associated with early versions of the model. However, as with other Meta platforms, privacy concerns have not hindered widespread adoption.
Zuckerberg noted that all these agents are “very computationally intensive.” Meta expects cost efficiency to improve 10x over the next year, which “will allow it to become profitable once revenue lines scale,” according to Zuckerberg. In other words: Muse is popular for now, but not making money.
If Meta’s ad revenue growth cannot be attributed to Muse, then what is the reason? The answer is artificial intelligence, which has long been central to Meta’s overall ad platform strategy.
Earlier this year, Meta launched Generative Recommender — an LLM-based tool that analyzes ad content and user preferences to determine the most relevant ads for a specific person. Target audience segments have seen an almost 2% increase in conversions since the tool’s launch in Facebook feeds, Meta CFO Susan Li said.
Meta also expanded GEM, its generative ad recommendation model, to include more user touchpoints, Li said. This means Meta can now unify recommendation data from various platforms in one place. This capability has led to:
A 1.7% increase in conversions for external campaigns.
A 9.6% increase in in-app conversions last quarter.
“AI investments have been benefiting Meta’s advertising business for many years. As LLMs become the foundation of more and more of the AI infrastructure, Meta will gain more insights into people’s preferences and interests, both in organic content and recommendations,” — Susan Li, Meta CFO.
The goal is not only to fuel Meta Advantage+’s ad optimization engine but also Meta’s creative personalization features.
Netflix: Revenue Growth and Advertising Challenges
Netflix’s revenue grew 12% year-over-year to $12.9 billion in the third quarter, meeting forecasts. However, the advertising business is slightly behind expectations, which led Netflix to adjust its forecast for the remainder of the year.
Frequently Asked Questions
What was Meta’s total revenue growth in the third quarter?
How much did Meta’s total revenue grow in Q3?
Meta’s total revenue grew by 26% year-over-year in the third quarter, reaching $64.2 billion.
How much ad revenue did Meta generate in Q3?
Meta’s ad revenue was $63.1 billion in the third quarter.
Is Muse profitable for Meta?
No, Muse is not currently profitable. Mark Zuckerberg noted that Muse agents are “very computationally intensive,” but Meta expects a 10x improvement in cost efficiency next year.
Which AI tools contributed to Meta’s ad revenue growth?
Growth was driven by the Generative Recommender, which increased conversions by 2%, and the expansion of GEM, which led to a 1.7% increase in conversions for external campaigns and a 9.6% increase for in-app campaigns.
How much did Netflix’s revenue grow in Q3?
Netflix’s revenue grew by 12% year-over-year, reaching $12.9 billion.
Conclusion
So, Meta is demonstrating strong revenue growth, primarily due to investments in AI, which significantly improve advertising performance. Products like Muse are currently unprofitable but have potential. While Netflix faces challenges in its advertising business, Meta continues to prove that favorable CPM and cheap hypothesis testing with AI optimization are a reality. Want to know how much money each ruble spent will bring? Learn how AI is changing the unit economics of advertising campaigns.
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