Questions Coming Out of Meta Connect 2023

Meta Platforms (NASDAQ: META) hosted its Meta Connect 2023 conference on September 27-28, 2023. In the opening keynote speech, CEO Mark Zuckerberg highlighted three new product innovations all geared toward making people feel closer and strengthening relationships. On the hardware side, the company showcased a faster, smoother Quest 3 VR headset and an upgraded pair of Ray-Ban Meta smart glasses. In addition, Zuckerberg discussed the new Meta AI innovations.

Quest 3 mixed reality headset

Meta’s Quest 3 mixed reality headset will go on sale on October 10 for $499.99, a fraction of Apple’s $3,499. The headset will also include the game Asgard’s Wrath to appeal to gamers. Looking ahead to the holiday season, Microsoft’s Xbox cloud gaming is coming to Quest in December.

Quest 3’s resolution will be an upgrade from Quest 2, but will still trail Apple’s Vision Pro by a significant margin. The 10x increase in pixels in Passthrough will give users improved accuracy within their play space. Given the big price differential, however, will these improvements help to stimulate sales with core gamers this holiday season?

In addition to the consumer market, Meta is also going after the enterprise market with Meta Quest for Business. Due out next month, it will be compatible with Microsoft and other business applications and take mixed reality to the workplace at scale. How big could this opportunity be for Meta?

Smart glasses

The next-gen smart glasses will feature a better camera/audio, a livestream capability, and Meta AI. The glasses will be available October 17 and retail for $299. A free software update next year will make the smart glasses multi-modal. According to the company, this multi-modality will be a natural way to put holograms into the world and the ideal way to let an AI assistant see what a user is doing. Could these smart glasses be a hot item this holiday season?

Implications for Reality Labs

With these new product releases, how they will help to drive revenues in this segment will be key. Reality Labs has been a meaningful drag on the company’s total operating profit margin with little visibility into when this drag will improve. According to Visible Alpha consensus, Reality Labs sales expectations have been trending down since Q2. Analyst estimates for Reality Labs revenues have come down from $1.9 billion to $1.7 billion for FY 2023 and from $2.2 billion to $2.1 billion for FY 2024. Analysts’ forecasts of operating losses at Reality Labs have increased from -$15.9 billion to -$17.4 billion in FY 2024.

Figure 1: Meta Platforms’ CEO Mark Zuckerberg’s keynote address

Source: Meta Connect 2023 on September 27, 2023

Meta AI

Meta’s new AI capabilities were in focus at the conference. Meta AI is a basic assistant to help answer questions and requests based on Llama 2 with Microsoft’s Bing search. Emu, Meta’s image-generation model, will enable users to create and send AI-generated stickers in chat. Emu is built directly into Meta AI to generate images in chat. Next year, AI Studio, Meta’s platform for building AIs, will roll out a sandbox for people that do not code.

The company partnered with celebrities on a number of Meta AI chat categories. For example, the company featured Snoop Dogg as the Dungeon Master for its Dungeons and Dragons AI chatbot. Will these enhancements help to drive engagement in Meta’s family of apps, leading to higher metrics and sales in Q4 and FY 2024?

Figure 2: CEO Mark Zuckerberg’s demo of Snoop Dogg as AI Dungeon Master

Source: Meta Connect 2023 on September 27, 2023

AI and the numbers

Could the new AI chatbots and stickers help to drive higher ARPU (Average Revenue per User) and ad revenue per DAU (Daily Average User) overseas? Increasing the monetization of Meta (Instagram, Facebook, WhatsApp) users overseas may be a positive going forward, especially in Asia. ARPU for the U.S. and Canada was up quarter over quarter and year over year to $53.53 in Q2, while international markets remained well below that level, diluting the worldwide ARPU to $10.63. In particular, Asia ad revenue per DAU (Daily Average User) was a fraction of U.S. and Europe levels in the first half.

Going forward, Asia ad revenue per DAU is expected to be a mere $30 in FY 2023, compared to significantly higher U.S. ad revenue per DAU projected to be $298, and EMEA ad revenue per DAU at $96. Could these enhancements make Meta’s WhatsApp more competitive against Tencent’s WeChat?

Figure 3: Facebook’s Average Revenue per User (ARPU)

Source: Meta Q2 2023 slide deck
https://s21.q4cdn.com/399680738/files/doc_financials/2023/q2/Earnings-Presentation-Q2-2023.pdf

Figure 4: META segment revenue and income consensus

Source: Visible Alpha consensus (October 3, 2023)

References:

• Meta Connect: https://www.facebook.com/Meta/videos/1038522214125952
• Meta Q2 2023 slide deck: https://s21.q4cdn.com/399680738/files/doc_financials/2023/q2/Earnings-Presentation-Q2-2023.pdf