Advantage+ Shopping: Meta's Fast Growing $20 Billion AI-Ads Star

Key Points

• Meta Platforms has become an advertising behemoth. Developing AI advertising tools has been one important driver of this success.
• Within Meta's advertising business, Meta's Advantage+ Shopping campaigns stand out. They use AI and have experienced rapid revenue growth in recent years.
• What investments is Meta making to ensure the continued success of Advantage+ offerings and its overall ads business?

As one of the world’s most valuable companies, Meta Platforms NASDAQ: META is massive and complex. The tech company has many products and services through which it aims to generate revenue and profits. One of these products that has been a key growth driver for Meta is Advantage+ Shopping. It has been a notable contributor to Meta's creation of one of the most successful advertising businesses in the world.

Understanding a company's key growth drivers is essential when considering investing in it. Observing the trajectory of a company’s key growth drivers can provide signals as to what might happen next, providing insights into the potential success of the overall company and, in turn, the stock.

Below, I’ll explore Meta’s Advantage+ Shopping and show how it has helped the firm create value. I’ll then discuss the current state of Advantage+ Shopping and related products and why they signal good things to come for Meta.

Breaking Down Meta’s Ads Business and Where Advantage+ Shopping Fits In

The success of Meta’s advertising business lies in the power of its Family of Apps: Facebook, Instagram, and WhatsApp. These apps are free, so the question is: How does the company make money off them? With nearly 3.4 billion people using Meta’s apps each day, the company has massive amounts of data on the human population.

Meta doesn’t directly sell this data to other parties. Instead, it uses it to create a highly valuable place to advertise, getting marketers to pay the company tens of billions annually to do so.

People share a lot of highly personal information on Meta's apps. This includes what they enjoy doing, who their friends are, and the content they interact with. When deciding whom to target with advertising dollars, highly personal information is exactly what a business wants to know.

The more precisely they can target someone who would inherently want their product, the more revenue they will generate per dollar spent.

This is where Advantage+ Shopping comes in. It is an advertising campaign tool. Advantage+ automates the creation of ad campaigns and optimizes them over time using AI and machine learning. This means less manual work for marketers. Meta invests in AI and machine learning to analyze app user data and decide which users should see a certain ad.

It aims to target those most likely to buy the product after seeing the ad. Because Meta has so much data on users and has invested significantly in AI, Advantage+ creates a superior return on advertising spend (ROAS). Thus, businesses find advertising on Meta very valuable and direct tens of billions in advertising dollars to the company.

Advantage+ Shopping: A Star Performer

Advantage+ Shopping saw rapid adoption out of the gate. The company said in initial testing that Advantage+ users were seeing a 32% increase in ROAS over its non-automated campaigns. In Apr. 2023, nine months after its release, daily revenue from Advantage+ Shopping campaigns increased by 600% in just six months. 

By Q3 2023, Advantage+ Shopping was generating $10 billion in annual run-rate revenue. In Q2 2024, Meta said that Advantage+ was continuing to drive strong advertising results, with U.S. advertisers seeing 22% higher ROAS. By Q4 2024, Advantage+ Shopping campaign revenues scaled past $20 billion in annual run-rate. They also grew 70% versus Q4 2023.

Advantage+ Investment Continues as Meta Solidifies Its Position

Meta continues to invest in Advantage+ and its overall ad business. Meta now has a full suite of Advantage+ tools. This includes Advantage+ App campaigns, which advertisers use to promote and encourage people to download a mobile app. This is similar to what a company like AppLovin NASDAQ: APP does. Advantage Creative+ helps optimize how ads look using AI.

The number of advertisers using this tool has increased by 300% in six months to four million. The company just released a white paper on four of its AI innovations. It provides specific metrics on how they are driving better performance for advertisers. This includes Andromeda, which was developed in partnership with chip giant NVIDIA NASDAQ: NVDA.

Overall, it's hard to argue with the success of initiatives like Advantage+ Shopping. People are paying more and more to advertise on Meta, creating strong advertising revenue growth and boosting margins. As Meta continues to invest heavily in its advertising business, the company has a strong opportunity to maintain its growth trajectory. Meta’s investments in AI signal that its apps will become more and more valuable places to advertise, driving value to the firm.