Earnings Season Leaves Markets Confused

Meta Platforms Inc.'s Q1 resulted in solid growth in users and revenue, but its stock value declined on Wednesday after the company’s cautious outlook for the next quarter. 

Despite exceeding the earnings estimates, Meta Platforms Inc (META) suffered a 12% loss after the market closure on Wednesday. 

The drop happened when the company gave a cautious outlook and reported an upward revision in the lower limit of its expected yearly costs.

Meta demonstrated continued operational strength but shows that it still needs to improve its ability to generate attractive returns on future growth investments. 

Meta Shares Tumble on Disappointing Q2 Outlook, Despite Exceeding Q1 Earnings

 
Q1 2024 saw Meta Platforms Inc.'s solid growth in users and revenue, but the company tempered these gains with a cautious outlook for the next quarter. 

Currently, the company has 3.2 billion daily active users, up 7% from the previous year, on top of a 20% increase in ad impressions. As a result, sales climbed by 27% versus last year to $36.46 billion, a small amount above the analysts' forecasts of $36.12 billion.

CFO Susan Li warned that higher infrastructure and legal costs might increase the company's yearly expenses.

“While we are not providing guidance for years beyond 2024, we expect capital expenditures will continue to increase next year as we invest aggressively to support our ambitious AI research and product development efforts,” Li said in a release.
“For Reality Labs, we continue to expect operating losses to increase meaningfully year-over-year due to our ongoing product development efforts and our investments to further scale our ecosystem.”

 
The $36.5 to $39 billion range, which Meta projected to gain in revenues in Q2 2024, failed to meet Wall Street’s expected value of $38.24 billion, leaving the investors disappointed. 

Source: Meta revenue reports, Q4 2021-Q1 2024, by Meta Inc. reports
 

However, the market was further affected by CEO Mark Zuckerberg’s focus on increasing investment in state-of-the-art technologies such as glasses, mixed reality, and AI, causing Meta’s stock to drop almost 18% after hours. 

Speaking of the company’s AI and metaverse ambitions, he said: 

“The new version of Meta AI with Llama 3 is another step towards building the world’s leading AI. We’re seeing healthy growth across our apps and we continue making steady progress building the metaverse as well.”

This strategic shift to AI and constant contributions remind investors of Meta’s previous substantial investments in the Metaverse, which had mixed results. 

The potential TikTok ban recently passed by the U.S. Congress might provide Meta with a strategic advantage if the legal challenge doesn’t overturn it, pushing users and creators towards Meta’s platforms, especially Instagram.

On the same call, CEO Mark Zuckerberg said: 

"As we're scaling capex and energy expenses for AI, we'll continue focusing on operating the rest of our company efficiently. But realistically, even with shifting our existing resources to focus on AI, we'll still grow our investment envelope meaningfully before we make much revenue from some of these new products."

Meta has been active in the AI sphere, introducing its Meta AI chatbot and the improved Llama 3 language model on April 18. 

However, after introducing the new software, Meta AI was reportedly confused by joining a private Facebook group for Manhattan-based mothers and making strange assertions of being a mother, as 404 Media said.

Meta’s Focus on AI and the Metaverse Remains Unhinged

To revitalise his company's spending strategy after the unprofitable Metaverse endeavours that resulted in losses of over $45 billion since 2020, Mark Zuckerberg, the CEO of Meta, will now focus on investing in AI technology. 

On his recent earnings call, Zuckerberg also noted the typical volatility of Meta’s stock during substantial investments into new but non-monetized technologies.

He declared his commitment to advancing AI developers, especially to improve their big language model, Llama 3, which is billed to fight off Microsoft’s ChatGPT and Alphabet’s Bard. 

The arrival of Meta AI on platforms like Facebook, WhatsApp, Instagram, and Messenger is an essential milestone for Meta in its contest against the running AI race, which Microsoft has led since the start of 2023.
 

Source: Meta Inc.

Finally, a few days before disclosing its financial results, Meta declared its readiness to provide the OS for AR headsets in cooperation with the major hardware developers Microsoft, Lenovo, and ASUS. 

This approach makes Meta’s AR technology more accessible to a wider audience, allowing it a better chance to compete with Apple’s iOS AR/VR hardware.

Further, the U.S. legislation against TikTok is becoming more accepted, and Meta may be impacted directly. To reach the degree that TikTok is pushed out of the U.S. market, Meta’s platforms, particularly Instagram, will likely be the best alternatives for millions of social media addicts.

Meta’s Volatility Shedding Light on the AI Industry’s Future?

Meta struggled from the whirlwind of 2022, characterised by overspending on its Metaverse endeavours and financial plight, but came back stronger in 2023, declaring it “a year of efficiency.” 

The company made employees redundant and hired other cost-cutting measures to reduce operating costs, resulting in a primed first dividend and inaugurating a $50 billion stock buyback.

Fueled by remarkable developments in AI technology, the company’s stock appreciated approximately 470% from its November 2022 trough, rising by almost 137% over the last year.

However, Meta has recently been heavily criticised for “monetising privacy” and its revived investments in AI. The growth of such companies raises the question of potential growth saturation not only for Meta but for all the major tech companies.

The tech world will be in suspense as today's earnings announcements regarding Microsoft and Alphabet are due to provide much more information on the dynamics of AI, showing a clearer picture of how the three giants are dealing with the strategic side of the competitive future.