Meta is proving the doubters wrong.
Meta is proving the doubters wrong.
After lagging the market over the past year, Meta Platforms (META -1.98%) is finally bouncing back. During September -- a month that has historically not been great for equity markets -- Meta gained about 25%, while the S&P 500 climbed by less than 1%. Meta has given back some of these gains in October, but for investors focused on the long game, there could be plenty of upside left for the tech leader. Here is why.
Meta's heavy investments are paying off
Over the past year, Meta Platforms has gone all in on artificial intelligence (AI). The company's significant investments in this field have been somewhat reminiscent of the period when it poured substantial sums into its metaverse ambitions. There is only one problem. Meta Platforms' metaverse efforts did not quite yield the results management expected.
So, it's not surprising that the market was somewhat skeptical of Meta's new focus, which is harming the bottom line. In the second quarter, Meta Platforms' revenue grew by 28% year over year to $60.8 billion. So far so good. However, the company's income from operations dropped 8% year over year to $18.8 billion, with the operating margin at 31%, down from 43% in the year-ago period.
Meta Platforms' net income dropped 14% year over year to $15.8 billion, and the company's free cash flow declined 91% to $784 million. Meta's AI investments were partly responsible for the declining profits. The question for investors is whether the company's spending will pay off and justify its investments.
Recent developments suggest that Meta's spending wasn't in vain. Last month, the company launched Muse, an AI agent that quickly became popular and rose to the top of the list of the most downloaded free iOS apps. Muse can help its users perform a host of tasks and is proactive -- it can act autonomously without a prompt, unlike AI chatbots. The service is free up to certain usage limits. There is a paid tier for those who want more capabilities.
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Meta also suggested that it would monetize Muse by charging retailers a transaction fee when the AI agent helps users make purchases. But Meta didn't stop there. The company launched Muse for small businesses. More recently, the company launched Muse Wonder and Muse Wonder Full, two advanced AI models that are on par with the leaders in the field, according to some rankings.
Averytin News Financial update.