Meta plunges 16% on weak revenue guidance even as first-quarter results top estimates
Meta shares plunged 16% in extended trading on Wednesday after the company issued a light forecast, which overshadowed better-than-expected first-quarter results.
Here are the key numbers:
- Earnings per share: $4.71 per share vs. $4.32 per share expected by LSEG
- Revenue: $36.46 billion vs. $36.16 billion expected by LSEG
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% from the year-earlier period.
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 sell-off 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. And he said investments in artificial intelligence are increasing.
“On the upside, once our new AI services reach scale, we have a strong track record of monetizing them effectively,” Zuckerberg said.
The Facebook parent 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, as of Wednesday’s close, 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 are anticipated to be in the $35 billion to $40 billion range, 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, the company said.
Meta has been clawing back digital ad market share after a dismal 2022. At that time, it 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% in the first quarter 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.
Li said on Wednesday’s earnings call that the company isn’t quantifying the contribution from China in the quarter, but she said advertising revenue in the Asia-Pacific region increased 41% from a year earlier, making it the fastest growing region, and was boosted by online commerce and gaming.
The company’s Reality Labs unit, which houses its 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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