Meta Platforms beat market expectations for second-quarter revenue on Wednesday and issued a rosy sales forecast for the third quarter, signaling that robust digital-ad spending on its social media platforms can cover the cost of its artificial-intelligence investments.
Shares of the company were up 6.8% after the bell, reports Reuters.
The Facebook and Instagram parent said it anticipates third-quarter revenue in the range of $38.5 billion to $41 billion, the midpoint of which is higher than analysts' estimates of $39.1 billion, according to LSEG data.
Revenue rose 22% to $39.1 billion for the April to June period, Meta said, compared with analysts' expectations of $38.3 billion.
Meta Chief Financial Officer Susan Li told analysts on a call that the company was "continuing to see healthy global advertising demand" and was also reaping the fruits of a multiyear project to use artificial intelligence to improve targeting, ranking and delivery systems for digital ads on its platforms.
Li and Chief Executive Mark Zuckerberg said those tools would continue to drive growth in the coming two years, while new generative AI features like chat assistants would take longer to monetize.
Shares of social media app Snap (SNAP.N), opens new tab, which likewise relies heavily on digital advertising, rose 3% after the Meta report.
"Any apprehensions investors may have had about Meta's spending on AI and the metaverse are likely to be allayed by this quarter's results," said eMarketer analyst Max Willens.
"With its margins as healthy as they are, Meta's investors should feel comfortable with the company's vigorous investments in its plans for the future," Willens added.
Although Meta's costs rose 7% in the second quarter, its revenue jump topped expense growth substantially and led to a 9-point rise in operating margin, to 38% from 29%.
However, Meta Platforms are reportedly running ads on Facebook and Instagram that steer users to online marketplaces for illegal drugs, months after The Wall Street Journal first reported that the social-media giant was facing a federal investigation over the practice.
The company has continued to collect revenue from ads that violate its policies, which ban promoting the sale of illicit or recreational drugs. A review by the Journal in July found dozens of ads marketing illegal substances such as cocaine and prescription opioids, including as recently as Friday. A separate analysis over recent months by an industry watchdog group found hundreds of such ads.
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