On Wednesday, April 24th, Meta released its first-quarter financial report. Despite better-than-expected data, the stock price plummeted 16% in after-hours trading due to increased spending on artificial intelligence (AI) and lower revenue forecasts for the future, resulting in a market value decrease of nearly $200 billion.
As the parent company of Facebook, Meta saw its stock price double last year. By the end of trading on Wednesday in 2024, the stock had surged approximately 40%, raising investor expectations for the company.
According to the performance report, Meta’s earnings per share (EPS) were $4.71, exceeding LSEG’s expectation of $4.32 per share. First quarter revenue reached $36.46 billion, surpassing LSEG’s expectation of $36.16 billion and marking a 27% increase from the same period last year when it stood at $28.65 billion, making it the fastest-growing quarter since 2021.
Net profit rose from $5.71 billion, or $2.20 per share, in the same period last year to $12.37 billion, or $4.71 per share, more than doubling.
One reason for the profit increase was that while revenue accelerated, sales and marketing costs decreased by 16% compared to the same period last year.
Meta projects second-quarter sales to range between $36.5 billion and $39 billion, with a midpoint of $37.75 billion, an 18% year-over-year increase but below analysts’ average expectation of $38.3 billion.
Simultaneously, the company raised its expenditure forecast for this year. Capital expenditure for 2024 is expected to range between $35 billion and $40 billion, higher than the previous estimate of $30 billion to $37 billion. This increase aims to support investments in new AI products and corresponding computational infrastructure.
Meta also mentioned that expenditure is expected to continue to rise next year.
Meta no longer reports daily active users and monthly active users but now provides the so-called “family daily active users.” In March 2024, this figure reached 3.24 billion, a 7% year-over-year growth.
In February 2023, Meta CEO Mark Zuckerberg told investors that this year would be an “efficiency year,” which sparked a stock rebound.
At that time, Zuckerberg stated that the company would eliminate unnecessary projects, streamline manpower, and ultimately become a “stronger and more flexible organization.” In the first half of 2023, the company cut approximately 21,000 jobs, with Zuckerberg stating in February this year that “recruitment will be relatively less compared to our historical practices.”
Employee count for the first quarter decreased by 10% from the same period last year to 69,329.
Advertising revenue represents the vast majority of Meta’s business, surging by 27% in the first quarter to reach $35.64 billion.
However, some analysts warn that a slowdown in advertising revenue from Chinese firms could pose a concern for both the first quarter and the entire year.
Meta’s Reality Lab, responsible for developing new metaverse hardware and software, continued to incur losses. This quarter, the Reality Lab’s revenue was $4.4 billion but incurred a loss of $3.85 billion, bringing the total loss to over $45 billion since the end of 2020.
Jasmine Enberg, Chief Analyst at Insider Intelligence, told Reuters, “Investors are skeptical of the growing AI expenses, with some investments potentially taking years to yield returns.”
Nonetheless, Meta’s use of AI tools to boost advertising revenue and introduce new AI features like chatbots shows its commitment to enhancing social media engagement.
Enberg believes Meta is excelling in the AI race and could emerge as a dark horse in the future.
Sophie Lund-Yates, an analyst at Hargreaves Lansdown, also told Reuters, “While Meta’s AI plans are ambitious, it cannot overlook the core of its business – its core advertising business.”