As one of the world’s largest and most influential companies, Meta Platforms (NASDAQ: META) is often the subject of interesting reports containing juicy rumors.
One of the more impactful reports over the past several months comes from the Wall Street Journal. It highlights Meta’s growing reliance on artificial intelligence to reshape its core advertising business.
If Meta succeeds in achieving its vision, as laid out in the report, the stock could experience huge positive implications.
So, what exactly are Meta’s latest big ambitions, and why could they be so impactful?
Fully Automated Ads: Meta’s Next Frontier
Meta owns one of the world’s largest advertising businesses, generating approximately $166 billion in advertising revenue over the last 12 months. In 2024, the tech company managed to accelerate its ad revenue growth rate. Despite the company's massive scale, the figure ticked up to 22% compared to 16% in 2023.
Meta’s investments in AI have driven much of this, improving ad targeting among its approximately 3.4 billion users. This has led to marketers purchasing more ads on Meta’s apps and paying more per ad.
Now, Meta is making efforts to extend these positive trends even further. According to reports, Meta is looking to allow users to fully automate ad creation and targeting using AI by the end of 2026. Marketing teams could simply provide a picture of their product and give an ad budget.
Then AI will take over the process, creating text, images, and video for the campaign, while also deciding which potential customers are best to show the ads to. So, why could achieving this be such a big deal for Meta?
Campaign Efficiency Can Boost Revenues, Margins, and Shares
The costs of a company creating and managing its ad campaigns can be very high. Data from SiegeMedia estimates that basic video ads cost $3,500 per minute. Additionally, the firm estimates that developing a full-fledged ad campaign for medium-sized businesses can cost between $10,000 and $20,000 a month. These costs can be a lot to stomach, especially for smaller businesses.
Using Meta’s AI tools, it is possible that these costs could be dramatically reduced. That would be a big incentive for smaller firms to direct spending away from traditional campaign creation providers and towards Meta. That’s not to say that Meta will eliminate the need for businesses to use more bespoke ad-creation services. But, as the company’s AI tools become more advanced, Meta can bend the curve over time.
This is particularly true given that AI capabilities are improving rapidly. It is hard to see traditional marketing services learning and advancing their skills faster than AI.
These improving capabilities can lead to continuing trends discussed above: more ads going toward Meta and higher prices paid per ad. This can benefit the company’s revenue growth and margins, which are key factors that can help push Meta's shares higher.
Meta Dominates Ads; AI Can Push Its Lead Further
Improving its AI tools goes back to the crux of Meta’s value proposition: making ads more efficient, as discussed by eMarketer. Rather than simply trying to put out more ads, return on ad spending (ROAS) is what marketers seek. This allows them to generate the same amount of business for a lower cost, which is the key to growing profits. Based on this data, Meta ads generally do a better job at this than those of its Magnificent Seven peer, Google parent company Alphabet (NASDAQ: GOOG).
Meta ads achieved an average six-to-one ROAS, while Google Ads achieved a significantly lower four-to-one ROAS. Meta is also particularly good for generating brand awareness. This is key for small businesses, who need people to know about their products before they will consider buying them.
Based on eMarketer’s data, Meta has done the best job monetizing its user base on social media platforms. In the United States, the average revenue per user (ARPU) for Instagram and Facebook is around $223 and $191, respectively. Third place goes to TikTok, at just $109. This indicates that advertisers believe they are getting strong value from Meta’s apps, as their spending on Instagram and Facebook far exceeds that of other platforms.
Overall, improving its AI tools to allow for even more efficient ad campaigns can enable Meta to continue building on the lead it has already gained. This big tailwind could allow revenues, margins, and ultimately shares to go higher long-term.
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The article "Meta and Autonomous Advertising: The Stock's Next Big Tailwind?" first appeared on MarketBeat.
