Meta Platforms, the parent company of Facebook and Instagram, sent shockwaves through Wall Street on Wednesday with disappointing forecasts of higher expenses and lighter revenue, wiping nearly $200 billion off its stock market value in after-hours trading.
The company’s shares plummeted about 15%, reducing its market capitalization to around $1 trillion. This sharp decline comes close to the record one-day loss of $232 billion that Meta suffered on February 3, 2022.
Other tech giants also felt the heat, with Alphabet’s shares sliding 3% and Microsoft’s dropping 2%. Nvidia and Amazon also saw losses of 1.4% and 2.6%, respectively. Investors grew wary that Wall Street might have underestimated the escalating costs associated with the AI race, which could impact other Big Tech companies ahead of their earnings reports.
Meta’s revenue forecast for April-June is now between $36.5 billion and $39 billion, with a midpoint of $37.8 billion—lower than analysts’ estimates of $38.3 billion. The company also increased its projected expenses for this year to support investments in new AI products and the computing infrastructure required for them. Meta now anticipates expenses for 2024 to range between $96 billion and $99 billion, with capital expenditure between $30 billion and $40 billion.
Mark Zuckerberg, CEO of Meta, emphasized the company’s commitment to AI during an earnings call, mentioning that investments in this area would grow significantly before the new products generate substantial revenue.
Jasmine Enberg, principal analyst at Insider Intelligence, commented, “Investors are skeptical of the growing AI spending. Some of those investments could take years to pay off.” However, Enberg also noted Meta’s potential advantage in the AI race, given its existing user base across its apps and ad ecosystem.
While Meta has been investing in AI-driven features and ad-buying products to boost revenue, it seems to be facing challenges in its Reality Labs division. Despite a 30% year-on-year increase in sales, the division’s first-quarter revenue of $440 million fell short of investors’ expectations of $475 million. Reality Labs also reported a loss of $3.8 billion for the quarter.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, warned Meta against losing focus on its core advertising business, stating, “For all Meta’s bold AI plans, it can’t afford to take its eye off the nucleus of the business – its core advertising activities.”
Additionally, Zuckerberg hinted at potential monetization strategies for Meta’s AI chatbot, such as business messaging and customer support. He also acknowledged the regulatory pressures faced by TikTok, Meta’s Chinese-owned short video competitor, though the company’s CFO, Susan Li, refrained from speculating on the business impact of a potential U.S. ban on TikTok.
Despite the disappointing forecasts, Meta’s first-quarter revenue stood at $36.5 billion, slightly surpassing expectations of $36.2 billion. The company reported a 7% growth in its daily active people (DAP) metric, down from 8% in the previous quarter. Meta’s decision to only disclose the DAP figure, omitting user growth numbers for Facebook, reflects the slowing growth of its flagship social network in recent years.