Meta Q2 ad sales expected to rise; focus on AI roadmap, costs

By Yuvraj Malik

(Reuters) - Meta Platforms is expected to report a 20% rise in quarterly revenue, helped by strong ad sales driven by the Olympics and elections in several countries, but investors will want to see if its spending on AI is starting to yield returns.

The social media giant, like its tech rivals Google-parent Alphabet and Microsoft, is spending billions on tech infrastructure to support AI development. In April, Meta's upward revision in full-year expenses shaved off nearly $170 billion from its market capitalization in a single day.

Alphabet's warning last week that capital expenses would stay high this year, overshadowed a jump in ad sales and pushed its stock down.

Meta is betting on an open-source approach for its generative AI push. The company released its mostly free Llama 3.1 artificial intelligence model last week, and said developers can use and modify its AI models free of charge.

It has burnished its ad-buying products with AI tools and introduced new AI features such as a chat assistant to drive engagement on its social media properties. On Monday, it said it would roll out a new tool called AI Studio that would allow users to create, share and design personalized AI chatbots.

"We are bullish on Meta's position as a key pillar of open-source AI," Jefferies analysts said, adding that the company could potentially unlock new revenue streams by licensing its AI models or creating AI apps.

Meta shares have risen 32% this year, compared with a near 16% rise in the tech-heavy Nasdaq Composite index.

The company will also need to show its bread and butter ad business is thriving when it reports second-quarter results on Wednesday.

GroupM, one of the world's largest media buying firms, raised its 2024 global advertising growth forecast to 7.8% in June, from 5.3% in December, which augurs well for Meta.

Smaller ad-dependent companies Pinterest and Snap are scheduled to report results on Tuesday and Thursday, respectively.

"We remain positive on Meta and think Reels, Messaging and AI-driven ad improvements are still early, and could lead to positive product surprises and revenue upside," analysts at BofA Securities said.

"With political spend, and potential TikTok ban in 1Q'25, Meta could also see an ad spend benefit in 2H'24."

(Reporting by Yuvraj Malik in Bengaluru; Editing by Sayantani Ghosh and Shounak Dasgupta)