Meta's stock falls as higher AI spending, modest revenue forecast disappoint investors

Meta Platforms, the parent company of Facebook and Instagram, faced a downturn in its stock value on Wednesday as it revealed projections of increased expenses and revenue figures below market expectations.

According to Reuters, the announcement prompted a loss of about $200 billion in its market capitalisation, with shares falling by approximately 15 per cent in after-hours trading.

This decline saw Meta's market cap plummet to around $1 trillion, noting one of the most substantial single-day losses in market value for a US company.

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The drop was slightly away from the record set on February 3, 2022, when Meta suffered a $232 billion one-day loss.

Meta's discouraging performance rippled through the tech industry, with shares of Alphabet and Microsoft also experiencing declines in extended trade.

Concerns increased among investors that the growing costs associated with the race in artificial intelligence (AI) might be outweighing the projected benefits for these tech giants.

This apprehension comes ahead of Alphabet and Microsoft's financial reports scheduled for Thursday.

The company disclosed its revenue forecast for the April-June quarter, estimating it to range between $36.5 billion and $39 billion, with a midpoint of $37.8 billion.

However, these figures fell short of analysts' projections, which averaged at $38.3 billion.

Meta attributed the anticipated increase in expenses to support investments in new AI products and the requisite computing infrastructure.

Moreover, it indicated a continued upward trajectory in spending into the next fiscal year, with the total expense forecast for 2024 raised to $96 billion-$99 billion.

Additionally, Meta adjusted its 2024 capital expenditure projection to a range of $30 billion-$40 billion, up from the previous estimate of $35 billion-$37 billion.

CEO Mark Zuckerberg highlighted the company's quest to expand its investment portfolio in AI, acknowledging that these endeavours would precede substantial revenue generation from the new products.

Mark Zuckerberg's remarks and the quarterly results tempered the optimism surrounding Meta's AI ventures, especially after a string of highly successful quarters for the social media giant.

While the company's AI investments hold significant potential, investors remain cautious, wary of the extended timeline for returns on these investments.

However, analysts note that Meta's entrenched user base across its existing platforms could provide a competitive edge in the AI landscape, particularly concerning eventual monetisation through its advertising ecosystem.

Despite the focus on advancing AI technologies, Meta continues to enhance its advertising capabilities, incorporating AI tools and short video formats to drive revenue growth.

However, analysts caution that Meta must not neglect its core advertising activities amidst its ambitious AI initiatives.

The company's Reality Labs division, oriented towards the metaverse, fell short of expectations in the first quarter, recording sales of $440 million.

While this represented a 30 per cent increase year-on-year, it failed to meet the anticipated revenue of $475 million.

Additionally, Reality Labs incurred a loss of $3.8 billion in the quarter, on track to match the $16 billion loss incurred over the course of 2023.

Zuckerberg outlined potential monetization strategies for Meta's AI chatbot, including its integration into business messaging and customer support services.

Furthermore, Meta stands to potentially benefit from regulatory pressures on its competitor TikTok, which faces the prospect of a US ban.

However, Meta's CFO Susan Li refrained from assessing the business impact of this development on its rival.

Despite the market's reaction to its projections, Meta released a first-quarter revenue of $36.5 billion, in line with expectations.

The company's daily active people (DAP) metric, used to track unique users across its apps, grew by 7 per cent, slightly lower than the 8 per cent growth recorded in the preceding quarter.

Meta also opted to disclose only the DAP figure for user growth, foregoing the previous practice of breaking out numbers for its flagship social network Facebook.

(With inputs from Reuters)