By Vivek Kumar
Shares of Meta, the parent company of Facebook and Instagram, experienced a significant drop of more than 15 per cent during after-hours trading.
This decline came after Meta announced higher-than-expected expenses for artificial intelligence (AI) and issued a cautious revenue forecast, which overshadowed its strong first-quarter performance.
“Meta reported a 27 per cent increase in revenues (highest YoY growth rate since 2021), a 117 per cent increase in net income, and operating margins of 38 per cent (up from 25 per cent a year ago). Meanwhile, the stock was down 15 per cent in after-hours trading. Expectations are everything in markets,” Charlie Bilello, Creative Planning’s Chief Market Strategist said on platform X, which was formerly known as Twitter.
Meta reported impressive earnings for the first quarter, with revenue climbing 27 per cent to reach $36.46 billion. This marked the fifth consecutive quarter of accelerated growth for the company.
Net income also saw a substantial increase, more than doubling to $12.37 billion, or $4.71 per share, compared to $5.71 billion, or $2.20 per share, in the same period last year.
A significant factor contributing to the surge in net income was a notable decrease in sales and marketing expenses, which dropped by 16 per cent from the previous year. Additionally, advertising revenue, Meta’s primary source of income, saw a significant increase of 27 per cent in the first quarter, reaching $35.64 billion.
Meta attributed its growth to several factors, including a stabilizing economy and increased spending from Chinese discount retailers like Temu and Shein.
However, analysts have raised concerns about the potential impact of a slowdown in Chinese advertising spending in the future.
Looking ahead, Meta expects second-quarter sales to fall between $36.5 billion and $39 billion, with a midpoint of $37.75 billion, slightly below analysts’ expectations of $38.3 billion.
Additionally, Meta revised its expense forecast for the year, anticipating higher investments in new AI products and computing infrastructure. The company now projects total expenses for 2024 to be between $96 billion and $99 billion, with capital expenditure ranging from $30 billion to $40 billion.
Following the announcement, Meta’s stock price plummeted to $418.85 in extended trading, resulting in a market capitalization drop to approximately $1 trillion. This decline erased nearly $200 billion from its market value.
Despite this setback, Meta has had a strong performance year-to-date, with over a 40 per cent increase in its stock price. The company’s involvement in generative AI has been a significant driver of its growth, leading to a new record high earlier this month.
In an interview with The New York Times, Thomas Monteiro, a senior analyst at Investing.com, stated, “Meta’s earnings should serve as a stark warning for companies reporting this earnings season.”
Despite the company’s robust results, Monteiro emphasized that “it didn’t matter as much as the reported lowering revenue expectations for the current quarter.” He added, “Investors are currently looking at the near future with heavy mistrust,” as reported by The New York Times.
