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Looking at shares of meta platforms right now. They are lower in the after hours, but not by much. They were bouncing around a little bit, but now down about one point one percent. We got news at the company. He's fourth quarter revenue coming pretty much in line with estimates forty five billion to forty eight billion dollars. Mark Zuckerberg himself calling it a pretty good quarter, a good quarter in the press release. Let's see what Mandeep Saying
has to say about that. Mandeep joins us here in the Bloomberg Interactive Broker Studio's Bloomberg Intelligence senior technology analyst. He's looking at these numbers. What sticks out to you, especially in the wake of what we heard yesterday from Alphabet.
Yeah, I think most of the numbers that I see are in line with the expectations. I mean, the one thing is ad pricing. So ad pricing continues to tick up. If you look at this quarter, I think it was around eleven percent. Impressions went down a little bit, and it's just the function of how well they have been executing in terms of, you know, implementing generative AI and really making changes that compared to Snap who reported yesterday
we saw snaps at pricing decline. So you know, that just goes to show at what scale care we really compare the two well, I mean, digital ads is a function of how much you are better in terms of targeting versus the other platforms. So Google Search at pricing grew seven percent, Meta platforms at pricing grew eleven percent, Snap at pricing down seven percent. So it just goes to show it's easy to monetize on Snap, but you
are not getting the ROI. In the case of Google and Meta, you are getting an ROI on your ad spend and that's why advertisers are willing to spend more. So it's a function of scale, but the effectiveness is there, and that's evident in meta platforms.
To talk about all kookie things that they're still spending money on. Reality Labs posting a four point four billion dollar loss in the third quarter, it's revenue did rise twenty nine percent year over year to two hundred and seventy million dollars in the third quarter. That was actually below analyst expectations four point four billion dollars. What are they doing over at Reality Labs.
Mean, we know, it's the investments in the VR headsets, the ray bang glasses we have talked about at Land and look, I think they will always be a drag on the overall operating profit because even if they sell you know, one hundreds thousands millions of these, the margins will never be comparable to their core ADS business, which is north of fifty percent. So hardware is a money losing business for Meta right now. And that's what's evident in that four point four billion dollar loss.
One of the headlines coming out of these numbers. Meta still sees significant capital expenditures growth in twenty twenty five. I feel like I'm talking to someone right now about the Federal Reserve minutes. What does quote significant mean here?
Help us?
Well, So, look at how much the capex grew in twenty twenty four so far, and we're talking about already, you know, a twenty percent bump. In the case of Microsoft, it's fifty percent, so significant could be fifty percent from you know, forty billion this year, and that would get it closer to sixty billion. Now. The difference between Meta and Microsoft is the capex intensity for Meta is already north of twenty percent. Normally for large tech companies, CAPEX
intensity is like ten to fifteen percent. That's where Alphabet is at.
So where are they spending this money? Katie mentioned that about ten percent of in Nvidia's revenue comes from Meta platforms, about twenty percent coming from Microsoft. Yeah, where's where does Meta spend this money next year?
It's going towards GPUs. I mean it's every large tech company right now is looking to build bigger data centers where they can train their AI. And Meta has that distinction of owning a large ANGLD model, their Lama language model, which they didn't mention a lot in their release, but it will come up on the call. And they have talked about Meta AI having five hundred million monthly active users that is powered by Lama. In fact, there was some talk about Lama being licensed to an Amazon AWS
so they could start monetizing that. I mean, there's no mention of it in the press release, but we will hear about that on.
The earning spot.
I want to talk a little bit about the share reaction. Meta shares currently down over three percent right now, but I mean it's been an incredible run for Meta. You talk about price to Perfection. I don't know if Perfection exactly was priced in, but the bar was certainly high for this stock.
And look at the multiple. The price to earnings multiple of Meta is twenty five times forwardunnings compared to an Alphabet which is still below twenty times forward earning. So clearly there is that gap that Alphabet could catch up to these guys in terms of multiples, and Microsoft is close to thirty times earning. When you know, the setup is such that expectations are higher. I mean, Microsoft had
thirty four percent growth in Azure. Still that wasn't good enough to drive up those stock, So that's where expectations come into play.
You mentioned Lama and the potential integration. Explain to everyone what Lama is and how Meta Platforms is actually using it outside of sort of internally. I mean, I know, I don't know. Am I seeing Lama when I go search on Instagram, when I search on WhatsApp?
Yeah?
So Lama.
We've started hearing about Meta getting into their own search business.
Yeah.
And look, Google and Meta have that distinction of owning their large anglid model, whereas everyone else is dependent on open Ai or Anthropic, which are independent companies. So in the case of Meta, they've had a lot of success. It's like Lama is on three point two release and every release is getting better in terms of the native capabilities.
But can I download Yama as at and alone app right now?
No? No, So this is a large I can't.
I can't download it like I download Chat GPT and use Chat GPT.
I mean, they're looking to go towards that model where you can use Lama in that form. But right now, Lama is just being deployed across their family of apps, which is Instagram, you know, WhatsApp and Core Blue App. But again, owning a large anglid model is such a huge moat, and that's where you know, all these companies spending on data centers, the compute capacity. What they're looking to do is to really build on that large anglid model mode.
There you go, There you go, and deep. We should let him get back to work. Call to listen to. He's got a report to write, he's busy after Alphabet and Snap. Yesterday we made him talk about Reddit. He didn't even know he was going to talk about Reddit. Yesterday. We made you go everywhere Mannie, thanks so much for joining us. Really do appreciate it. Okay, so Meta platform shares moving in the after hours, they were down as
much as three percent, now down about two point seven percent. Katie, help me out with Microsoft and what Microsoft is doing.
I mean, I think it comes back to those high expectations as well. You see shares right now was a pretty clean quarter overall, and I can't seem to quite get off the ground in the after hours trade. We've been toggling around what thirty four times earnings, that's what it's trading at. That's a pretty high bar, tim.
Yeah, it is Microsoft clouds computing business, the office software fields, stronger then expected quarterly revenue growth. It's a sign that the company's heavy investments in AI are starting to pay off. All right, let's get more.
Now.
We got aniog Rana joining us. He has been looking at these numbers for the past thirteen minutes or so. He's from Bloomberg Intelligence. Aniog what sticks out to you from this report?
Yeah, the Azure number sticks out to us. That's thirty four percent increase in constant currency. That's fairly impressive given the size of that business. And another thing they basically mentioned was it includes our twelve percentage points of growth coming from AI related workloads, and Microsoft is the only company that's really quantifying it at a very, very, i would say, credible way at this point compared to any
of the other companies. So you know, But at the same time, they're going to give guidance on the conference call that's going to be an hour from now, and I think that dictates what happens to the stock tomorrow.
Yeah, and of course it'll be interesting to see how the market continues to digest these numbers bouncing around all over in the after hours trade. Talk to us a little bit more about the conference call, I mean, in addition to some more details on the cloud, what else will you be listening.
For capital expenditures and how much more are they're going to spend and what is it going to do for margins. This is the first year where we're going to see Microsoft's operating margin dip probably about one hundred to one hundred and fifty basis points because of all the investments that they're doing, and they need to convince the street that these investments are worth the effort.
That means they're.
Going to spend the money this year and over the next few years, You're going to see that money come back, and I think that's going to be a lot of discussion around capital expenditure as well as you know, growth.
And ansure, and of course we're coming off the heels a pretty strong alphabet results. I want to talk about the search business in particular. It feels like BANG has been the butt of the joke forever.
Really is it still you doing things?
I don't just bring it?
Yeah, you got a question, just bring it.
I'm going to start saying that. Are people saying that more?
Though?
You think about all these investments that Microsoft has made in AI in particular, is the search business seeing the fruits of that?
No, I would not say that.
I've been Their market share has remained kind of in that, you know, same number compared to the pre AI era. Microsoft made a big deal about it when they launched, you know, their bing with AI features, and that was the big thing that it's going to take down Google or take some market share away from it. So far it hasn't happened. But I think, you know, my Microsoft
is making a big noise about it. I also feel they are trying to do this because they may want to be you know, get a deal with Apple for the search in that particular ecosystem. So it's a good business, frankly, but that's not what's going to drive the stock. The stock is going to be driven by how the cloud growth is and how stable their office business is.
One thing that was pretty remarkable about yesterday's results on IRAQ from Alphabet, the parent of Google, is the cloud growth for that company. And men Deep was in here reminding us that when it comes to the cloud race, you got Aws, you got Microsoft, and then in third place you have Alphabet. So you're focused on Microsoft, the
number two player when it comes to cloud. Why does somebody go to Microsoft that somebody who isn't Open AI for example, why do they go to Microsoft instead of going to AWS or Google.
That's a very good question.
And you know, if you go back to the history of cloud, Aws was the first company that really championed the cause of public cloud services. Microsoft game and said, listen, go back to the companies that have been doing a lot of tech spending and say, you already have a lot of your workloads on Microsoft's products, which is Microsoft servers, Microsoft operating system in databases. Why don't you port over that workloads?
To Micloud.
So they really sold a lot of services as a function of hybrid cloud services, and that's really their bread and butter. But while when it comes to AWS in Google they're going after startups and trying to get more money from them.
How do you gain share in the cloud business? Is it a game of inches? I mean, what does that look like? That competitive landscape?
This is probably the most important thing we try to tell people that.
You know, if you go back and look at ten years ago, AWS has held its market share just in the cloud infrastructure space, there's somewhere roughly around thirty five to forty percent, somewhere in that range. But the size of the cloud market has become so big. When it was about one hundred two hundred billion at this point, you know, this is probably six hundred and seve hundred
billion and above at that point. So the whole market is growing and I think one of the places where people don't talk about because of Genai, we think cloud growth is going to be even bigger. So in our view, all three companies and for that matter, the fourth vender, Oracle, they're all going to.
Make good money over the next few years.
Because it's easy to run those AI workload and experiments on the cloud rather than doing it on premise.
Okay, so is there anything we should be focused on in these results that don't have to do with Azure or the cloud, the capital expenditures?
I think, yeah, well, you can talk about gaming and a few other things. But to be very honest, the valuation Microsoft and AWS and Google have at this point, it's largely driven by how they're going to monetize the AI investments.
Everything else is secondary.
The good thing about Microsoft is it has the Windows operating system. It has office that provides a lot of cash flow where they can invest without investors.
Get letty about it.
Okay, Katie reminding me throughout the day that twenty percent of in Vidia's revenue.
Click eighteen point nine percent, but close enough, Almost twenty percent of in Vidia's revenue comes from this one company, Microsoft another roughly ten percent. Ten percent Meta.
Platforms is according to the SPLC function on the Bloomberg terminal on IRAQ, how should we think about CAPEX from and then, look, I know you don't cover in video, but how should we think about CAPEX spend from Microsoft? Also, what we heard from other companies this week with regard to in Vidia, because that's certainly a focus for us and for our audience this week.
Yeah, and again it's you know, it's very difficult to tie at what part of capex is going towards data center, what is going to GPU. Well, one of the analysis that we did in recent weeks was from two thousand and three to two thousand and five, we are looking at an incremental ninety billion dollars from the life so the top cloud providers and Apple and some other companies, and.
A lot of that is going to build the infrastructure.
I think one of the things that can you know, break down some of the AI craze would be when all these companies said, wait, we're not going to be investing as much as.
We did before.
I think that brings it down. But at so far, what we have heard, investments are just ramping up right now, they are not slowing it down.
Okay, we got you for a couple more minutes. I want to make sure we continue to pick your brain before you have to go and write this note on IRAQ. But give us an idea of what you'll be listening for on the call a little later today, And how are you thinking about the note that you're going to end up writing tonight or tomorrow.
Yeah, So when you look at Microsoft results again, the question is going to be where is this growth coming from? Is it coming from directly the AI workloads or is it coming from non AI related cloud spending as well? Because that matters a lot for AWS, which is going to report Thursday night, because AWS does not have that level of AI related revenue coming in at this point. So there's going to be a lot of discussion whether Google and Microsoft are taking some share away from AWS
or not. So I think over the next day or so we get a big clarity that have we seen a big push in all cloud spending or are we seeing some kind of a market share shift.
I think it's all the vendors are going to benefit from that.
But I think for us today, when we are listening to the call, the question is going to be where is that spend coming from?
Okay, and before we let you go, one more question on Amazon tomorrow? What's the most Obviously AWS is important, but given what we heard from Alphabet and what we heard from Microsoft, what's your expectation for Amazon and AWS tomorrow?
We should see an improvement in growth rate for AWS because after these two companies, if they don't report that, I mean to be honest, that's not going to be good for them.
I don't think that's unlikely. But at the same time, we also want to know what's going to happen with their margins.
We have heard a lot about the company, you know, trying to rein in extra expenditures, trying to keep boots their margins. At the same time they're investing a lot in GENEI. So I think those two elements almost for every cloud company or any software company right now are what's your GENI contribution and what is happening to your margin structure.
Anna rad Rana, senior tech analogy analyst at Bloomberg Intelligence, joining us from Chicago.