How Meta Gives Its Investors an Edge Despite Growing Competition

In Meta Platform's (META -0.05%) most recent earnings report, there were some signs of a pullback with net income down year over year and more competition has played a part. In this video clip from "The Virtual Opportunities Show" on Motley Fool Live, recorded on May 24, Fool.com contributor Jose Najarro discusses how the company's investment in artificial intelligence is encouraging for the business going forward.

Jose Najarro: First if we take a quick look, Meta Platforms for their financial results total revenue was $27.9 billion dollars. That was up 7% year over year. Again, this is a company that was probably growing at strong double digits and now we're seeing a bit of a pullback. Their net income definitely took a huge hit as this company is obviously focused into that virtual reality labs is what they call it. But net income was $7.5 billion and that was down 21% year over year.

Their monthly active people which is across all their apps was 3.64 billion and that was up 6%. There's still seeing some growth in their overall products. I think it's insane the amount of numbers that we see there. They still continue a strong repurchase program. This quarter alone they purchased about 9.4 billion shares and they still have about 29.4. I would be surprised if doing these price decreases that we're seeing now with a lot of companies, I would be surprised if they're not adding more shares at these moments.

This is a company with very strong financials. We can see roughly $44 billion in cash in short-term investments. Some pretty cool things that I really like about Meta Platforms is they continue to push this move into artificial intelligence. I think I discussed it in the show. This is one thing where I think Meta Platforms did wrong when they were saying hey we're focusing on Meta realities or this virtual reality and metaverse.

Within there they also mentioned that they were focusing in artificial intelligence. I feel like this quarter during this earnings report they were like we need to explain a little bit better what we're going to be spending our money in. They mentioned a huge push into artificial intelligence. The great thing about artificial intelligence is going to help in a lot of their products.

First the advertisement. Like we mentioned before, Travis mentioned they don't have as much data as they had before. Now with artificial intelligence with that improvement, they will be able to either increase those advertisement returns with less information with the investments they are in AI.

Next is retention rate and suggestions. With artificial intelligence, they will be able to either push the right content to the right persons in their platforms, Instagram, Facebook, or whatever, which is going to allow that user to have a more positive reaction to their platform and stay longer. If you stay longer, interacting more with more Facebook, with more Instagrams, you're more likely to get hit with more ads at the end of the day that's going to increase total revenue for the business.

They did mention a bit of long-term goals. First, they wanted to reiterate to investors that they are really focused on that family apps and they want to grow there. Then that extensive earnings growth that they're seeing there, they want to focus onto reality labs. Unfortunately, because a lot of the risk happening this year, they don't believe that's going to be the case for 2022.

They do mention that they are slowing down on things like employee hiring. One of the major reasons is they want to continue to improve that cash flow from operations. They also did reduce the amount of money they were expecting to use this year again going with that employee hiring and maybe some of the investments that they are slowing down.

Now they're expecting their total capital expenditure this year to be somewhere between $87-$92 billion and that's down from $90-$95 billion. Somehow this company found an extra $3 billion savings somewhere along the line for the year.

I do believe there are some still major risks here for Meta Platforms. First, the current slowdown of e-commerce, just like Demitri mentioned with Best Buy (BBY 4.01%) last year a huge year for just e-commerce or just stores in general. Now companies are seeing that hey maybe we're not seeing that same amount of consumer spending at the moment due to too many reasons.

Some of those could be that financial stimulus check that many received. That slowdown is causing a slowdown in advertisement. Obviously, the big changes that are happening in the advertisement world. Other things like Ukraine and Russia are also impacting certain regions that they might produce ads for.

Inflation and interest rates just like Travis mentioned earlier today when companies start to take a hit in some of their profits one of the first places they start to look into reducing expenses is in the advertisement world.

Finally competition. You still have big players. TikTok continues to be a huge form of entertainment for a lot of people, especially for the short term. TikTok is really improving. They're making sure that their creators are getting paid, and they are adding new solutions for their creators, which at the end of the day is going to create this flywheel effect that's going to drive more creators to TikTok. More creators in that platform is going to drive probably more users. There's a huge amount of competition at the moment.

I do believe most of these risks are probably short-term outside of the competition. I personally am a shareholder of Meta Platforms. I do enjoy their engineering aspects and I think that can really help out where the company can go in the future.