Meta Platforms shares plunged 16% early in Frankfurt on Thursday after forecasts of higher expenses and lighter revenue than expected disappointed investors.
Shares in the Facebook parent were down 15.9% by 0614 GMT.
Meta shares dropped sharply in after-hours trading on Wall Street the previous
day after the company’s first-quarter earnings report raised fears that the
surging cost of AI is outweighing its benefits.
Revenue increased 27% from $28.65 billion in the same period
a year earlier, the fastest rate of expansion for any quarter since 2021. Net
income more than doubled to $12.37 billion, or $4.71 per share, from $5.71
billion, or $2.20 per share, a year ago.
One reason for the pop in net income is that, while revenue
growth accelerated, sales and marketing costs dropped 16% in the quarter from a
year earlier.
Meta said it expects sales in the second quarter of $36.5
billion to $39 billion. The midpoint of the range, $37.75 billion, would
represent 18% year-over-year growth and is below analysts’ average estimate of
$38.3 billion.
The stock selloff accelerated early in the earnings call
after CEO Mark Zuckerberg jumped into his discussion about investments, namely
in areas like glasses and mixed reality, where the company doesn’t currently
make money.
The company no longer reports daily active users and monthly
active users. It now gives a figure for what it calls “family daily active
people.” That number was 3.24 billion for March 2024, a 7% increase from a year
earlier.
Meta has raised investor expectations due to its improved
financial performance in recent quarters, leaving little room for error. The
stock is up about 40% this year after almost tripling last year. In February
2023, Zuckerberg told investors it would be the “year of efficiency,” which
initiated the rally.
At the time, Zuckerberg said the company would be better at
eliminating unnecessary projects and cracking down on bloat, which would help
Meta become a “stronger and more nimble organization.” The company cut about
21,000 jobs in the first half of 2023, and Zuckerberg said in February of this
year that hiring will be “relatively minimal compared to what we would have
done historically.”
Headcount declined by 10% in the first quarter from a year
earlier to 69,329.
Capital expenditures for 2024 will be $35 billion to $40
billion, an increase from a prior forecast of $30 billion to $37 billion “as we
continue to accelerate our infrastructure investments to support our artificial
intelligence (AI) roadmap,” Meta said.
Average revenue per user in the quarter was $11.20, Meta
said.
The Facebook parent has been clawing back digital ad market
share after a dismal 2022. At that time, the company was reeling from Apple’s
iOS privacy update and macroeconomic concerns that led many brands to rein in
spending.
Zuckerberg spearheaded an initiative to rebuild the ad
business with a focus on AI. On the company’s last earnings call in February,
finance chief Susan Li said Meta has been investing in AI models that can
accurately predict relevant ads for users, as well as tools that automate the
ads-creation process.
Advertising revenue, which accounts for the vast majority of
Meta’s business, jumped 27% to $35.64 billion.
Meta is benefiting from a stabilizing economy and surge in
spending from Chinese discount retailers like Temu and Shein, which have been
pumping money into Facebook and Instagram in an effort to reach a wider swath
of users. Some analysts have warned that slower spending from China-based
advertisers could be a source of concern in the first quarter and as the year
progresses.
The company’s Reality Labs unit, which houses the company’s
hardware and software for development of the nascent metaverse, continues to
bleed cash. Reality Labs reported sales of $440 million for the quarter and
$3.85 billion in losses, bringing total losses since the end of 2020 to over
$45 billion.
Analysts expected the division to show an operating loss of
$4.31 billion for the quarter.
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