Meta shares fall 15% on weak revenue forecast, higher AI spending ...
StoryMeta Platforms disappointed investors on Wednesday with forecasts of higher expenses and lighter-than-expected revenue, knocking nearly $200 billion off its stock market value and raising fears the surging cost of AI is outpacing its benefits.
Shares of the Facebook and Instagram parent dropped about 15% in extended trade following the report, its market capitalisation plunging to about $1 trillion. The late-day slump in Meta's stock value was just short of the $232 billion one-day loss suffered on February 3, 2022, which was the record one-day loss of market capitalization for any U.S. company.
Market Impact
Alphabet shares fell 3% in extended trade and Microsoft MSFT.O declined 2%, with concerns that Wall Street may have underestimated the cost of the AI race hitting those Big Tech companies ahead of their reports on Thursday. Nvidia lost 1.4% and Amazon dropped 2.6%.
Revenue Forecast and Expenses
Meta said it expects April-June revenue in the range of $36.5 billion-$39 billion, with a midpoint of $37.8 billion, compared with analysts' estimates of $38.3 billion, according to LSEG data. The company raised its forecast for expenses this year to support investments in new AI products and the computing infrastructure needed to support them.
CEO Mark Zuckerberg told analysts on a conference call that the focus on AI would "grow our investment envelope meaningfully before we make much revenue from some of these new products." Zuckerberg's comments and the quarterly results tempered expectations for Meta's AI investments after a series of smash-hit quarters for the social media giant.
AI Race and Monetization
"Investors are skeptical of the growing AI spending. Some of those investments could take years to pay off," said Jasmine Enberg, principal analyst at Insider Intelligence. "But Meta is in the AI race to win it, and Meta AI could be a dark horse. It has a built-in audience through its existing apps, and it will have an advantage in eventual monetization through its ad ecosystem," Enberg said.
The company has been updating its ad-buying products with AI tools and short video formats to boost revenue growth, while also introducing new AI features like a chat assistant to drive engagement on its social media properties.
Reality Labs and Regulatory Pressures
The company's metaverse-oriented Reality Labs division missed expectations for the first quarter, posting sales of $440 million. Investors had been expecting $475 million, according to LSEG data. Zuckerberg also described potential monetization plans for Meta's AI chatbot, such as using it for business messaging and customer support.
Meta theoretically stands to benefit from regulatory pressures bearing down on its Chinese-owned short video competitor TikTok, which is facing the threat of a U.S. ban, although Meta CFO Susan Li told investors she was not yet ready to assess the business impact of the potential setback for its rival.
User Growth and Revenue
Meta posted first-quarter revenue of $36.5 billion, roughly in line with expectations of $36.2 billion, according to LSEG data. Meta's daily active people (DAP), a metric it uses to track unique users of any one of its apps Facebook, Instagram, Messenger or WhatsApp in a day, grew 7%.
DAP grew 8% in the preceding quarter. Meta disclosed only the DAP figure for user growth, a first for the company. It said earlier this year that it would no longer break out numbers for flagship social network Facebook, whose growth has slowed in recent years.
