In 2006, Mark Zuckerberg promised the world "a completely new way of advertising online."
Facebook was only a couple years old at this time, long before the social-media site morphed into the tech colossus we now know as Meta Platforms (META) , which owns Facebook, Instagram, WhatsApp and Threads.
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"For the last hundred years media has been pushed out to people, but now marketers are going to be part of the conversation," Zuckerberg, the chief executive, said then. "And they’re going to do this by using the social graph in the same way our users do.”
The conversation has continued through the years and it's gotten a lot more expensive.
Ad spending in the social-media-advertising market is projected to reach $219.8 billion this year, according to Statista, with the projected market volume to reach $255.8 billion by 2028.
Zuckerberg spoke about Meta Platforms' advertising reach during the company's first-quarter-earnings call in April.
"There are several ways to build a massive business here, including scaling business messaging, introducing ads or paid content into AI interactions, and enabling people to pay to use bigger AI models and access more compute," he told analysts.
Zuckerberg says AI 'creates value for advertisers'
And on top of those, Zuckerberg added, artificial intelligence "is already helping us improve app engagement, which naturally leads to seeing more ads and improving ads directly to deliver more value."
He said that roughly 30% of the posts on the Facebook feed are delivered by its AI recommendation system, which was twice the figure of the past couple of years.
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"AI has also been a huge part of how we create value for advertisers by showing people more relative ads," Zuckerberg said. "And if you look at our two end-to-end AI powered tools, Advantage+ Shopping and Advantage+ App Campaigns, revenue flowing through those has more than doubled since last year."
Meta's first-quarter ad revenue surged 27%, a leap from the 4% growth reported a year earlier. Advertising revenue totaled $35.6 billion compared with $28.1 billion in the year-earlier quarter.
The average price per ad increased 6%, while ad impressions increased 20% and daily active users increased 7% to 3.24 billion.
Within ad revenue, the online commerce vertical was the largest contributor to year-over-year growth, followed by gaming and entertainment and media.
Capital expenditures totaled $6.7 billion and were driven by investments in service detailed data centers and network infrastructure
Chief Financial Officer Susan Li said during the call that "we’re leveraging AI to provide increased automation for advertisers.
"We continue to advance our understanding of users’ preferences for viewing ads to more effectively optimize the right time, place and person to show an ad to," she said.
Online ads have been a major issue with European Union regulators, who accused Meta Platforms of breaching the bloc’s new digital competition rulebook by forcing Facebook and Instagram users to choose between seeing ads or paying to avoid them, the Associated Press reported on July 1.
Analyst says 'AI drives revenue growth'
In November Meta began giving European users the option of paying for ad-free versions of Facebook and Instagram as a way to comply with the Continent’s strict data privacy rules.
The European Commission, the EU’s executive arm, said preliminary findings of its investigation show that Meta’s “pay or consent” advertising model was in breach of the 27-nation bloc’s Digital Markets Act.
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“Subscription for no ads follows the direction of the highest court in Europe and complies with the DMA,” Meta said in a statement to AP. “We look forward to further constructive dialogue with the European Commission to bring this investigation to a close.”
During the call, Li said "we continue to monitor an active regulatory landscape, including the increasing legal and regulatory headwinds in the EU and the US that could significantly impact our business and our financial results."
Meta Platforms is scheduled to report second-quarter earnings on July 31 and some analysts have focused on the company's adverting efforts.
On July 10, TD Cowen analyst John Blackledge raised the investment firm's price target on Meta Platforms to $600 from $530 and affirmed a buy rating on the shares.
The firm said Meta's AI focus is driving revenue growth across the business. So TD Cowen raised revenue estimates, given positive engagement trends in the investment firm's second-quarter survey data and a solid Q2 ad check.
Two days earlier, Wells Fargo analysts raised its price target on Meta Platforms to $625 from $593 and maintained an overweight rating on the shares.
The firm said that checks suggest a robust ad performance in the second quarter.
Wells Fargo said that it expected third quarter revenue guidance of $38 billion to $40.5 billion.
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