Shares of Meta Platforms (NASDAQ: META) soared by over 11% last night.
The big jump came after the social media giant reported its latest earnings.
But what’s so exciting about its results?
For starters, Meta Platforms’ revenue soared by 22% year-on-year for 2025’s second quarter (2Q’25).
That’s a strong performance, especially when you consider Meta’s size.
To put it into numbers: revenue rose from US$39 billion a year ago to US$47.5 billion.
That’s a US$8.5 billion revenue gain over the past year.
Surprisingly, that’s not the most interesting story.
How Meta’s AI engine powers its business
At its core, Meta’s ad business is not complicated.
Allow me to explain.
The social media network attracts people to its popular apps, namely Facebook, Instagram, WhatsApp and Messenger.
Without a doubt, the company does a fantastic job here.
There are almost 3.5 billion daily users across the four apps today.
But getting people to its site is just half the battle.
The real challenge is to get users to stay on its site and keep coming back.
And that’s where artificial intelligence (AI) helps in three key areas.
User engagement: Meta is using AI to improve its ability to show people content that is interesting or useful.
It’s working too.
AI-powered recommendations have increased time spent on Facebook and Instagram by 5% and 6%, respectively, during its latest quarter.
From a business perspective, more time spent equals more opportunities to sell ads.
Here’s the rub: you can’t just put up any ad and expect it to work.
The trick is to show the right ad to the right people at the right time.
That’s another area where AI excels.
AI-powered ad creation: Ad creation may be one of the best use cases for Generative AI.
Here’s a hint: it’s in the name — “generative”.
Meta’s ad suite includes GenAI tools to create multiple versions of ads, including images, animation, video generation and more.
AI can also help with language translation, another way for advertisers to broaden their reach.
The tools are catching on quickly,
Here’s a telling statistic: over two million advertisers are already using its video generation tools.
Creating more versions also increases the chance of finding the best ad copy to use.
But each copy needs to be put to the test.
And that’s the third area AI can help.
AI-powered conversions: During a marketing campaign, advertisers will try different versions of ad copies to find the most effective one.
What’s the signal they look for?
Ad conversions, or how well an ad translates to a lead or a sale.
Meta’s AI-powered recommendation model for ads is key here, helping drive around 5% more ad conversions on Instagram and 3% on Facebook.
That’s great for advertisers.
But what about investors?
How do the initiatives above grow Meta’s business?
Show me the money!
Earlier, we did say Meta’s ad business is not complicated.
Here’s why: when you step back and look at the big picture, there are two key levers to increase sales.
One, Meta can sell more ads.
Or two, it charges more for each ad.
Usually, a rise in one factor (higher-priced ads) leads to a drop in the other (fewer ads sold).
But what’s interesting in 2Q’25 is that the number of ad impressions increased by 11% year-on-year, while the average price per ad rose by 9% over the same period.
Translation: Meta is selling more ads, and charging higher prices for each one.
How so?
Simply said, the company is able to sell more when there is higher user engagement, and charge more when its ads convert better than before.
Get Smart: Can we have some more?
A 11% gain is nice.
But do you know what’s even better?
A 280% gain in three-and-a-half years.
That’s when the Smart All Stars Portfolio bought its biggest position in Meta back in February 2022.
If you are interested, check us my leaving your email HERE.
While the latest results have spurred a large gain in stock price in a single day, it pales in comparison to the compounded returns if you had held the shares three-and-a-half years ago.
For us, the latest results are a pit-stop in a marathon.
A nice one, no doubt.
But our eyes are firmly on the future and how Meta can further capitalise on its AI engine to grow.
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Disclosure: Chin Hui Leong has owned shares of Meta since January 2016 and will be celebrating its 10th anniversary at the turn of the year.
