Meta’ aggressive push into AI development spooked Wall Street on Wednesday, despite the tech company reporting first quarter income that soared by 117% on revenues up 27% to $36.46 billion, both of which beat analysts’ consensus estimates.
But plans by the company to further boost its spending on AI initiatives — as Meta races to compete with Google, Microsoft and OpenAI — led to pointed questions by analysts about the company’s ability to turn monetize those investments. Meta shares plummeted 16% in after-hours trading.
Revenues: $36.46 billion, up 27% from the year-ago period
Net income: $12.37 billion, a 117% increase over $5.71 billion in Q1 of 2023
Daily active users: Grew by 7% year-over-year to 3.24 billion on average
Fueling the stock plunge was the tech company’s announcement that it was increasing its previously estimated range of capital expenditures from $30-37 billion to $35-40 billion, which Meta attributed to the continuing acceleration in “infrastructure investments to support our artificial intelligence (AI) roadmap.”
“We expect capital expenditures will continue to increase next year as we invest aggressively to support our ambitious AI research and product development efforts,” the company said in Wednesday’s earnings release.
Analysts questioned CEO Mark Zuckerberg about the timing of the investment cycle of its AI development. Zuckerberg, noting that Meta had previously weathered cycles of stock volatility when it was building out Instagram Reels and Stories, said that it could take “a couple of years” to “focus on building out and scaling the product.”
Meta recently released a new version of its Llama 3 AI large language model, its competitor to Google’s Gemini and Microsoft/OpenAI’s GPT-4.
“We typically don’t focus that much on the monetization of the new areas until they reach significant scale because it’s so much higher leverage for us just to improve monetization on other things,” Zuckerberg added. He encouraged investors to “have quite a bit of confidence that if those are on a good track to scale, they’re going to end up being very large businesses,” referencing the company’s track record scaling Instagram Stories and Reels, when the company suffered similar stock-price volatility.
The Meta CEO added that he expects to see a “multi-year investment cycle” before fully scaling the tech company’s AI services. While Zuckerberg says “initial signs are quite positive,” the company is committed to “building the leading AI,” which will be a larger undertaking than previous initiatives.
When asked what changed in their projections on AI development in the quarter, Zuckerberg said that the company has gotten “more optimistic and ambitious on AI.”
“We’re not just building good AI models that are going to be capable of building some new good social and commerce products,” Zuckerberg continued. “We’re in a place where we’ve shown that we can build leading models and be the leading AI company in the world. That opens up a lot of additional opportunities beyond just the ones that are the most obvious ones for us.”
Meta’s revenues of $36.46 billion, and diluted earnings of $4.71 per share for its first quarter of 2024, beat Wall Street expectations, results the company attributed in part to progress in the development of its AI technology. Analysts surveyed by Zacks Investment Research were expecting Meta to report earnings of $4.32 per share and revenue of $36.28 billion.
During Wednesday’s earnings call, Zuckerberg said that Meta is “seeing healthy growth across our apps and we continue making steady progress building the metaverse as well.”
Daily active user numbers across Meta’s family of apps, which include Facebook, WhatsApp, and Instagram, climbed to an average of 3.24 billion, up 7% compared to last year.
For the first time, more than 50% of content on Instagram is AI-recommended, the company said. Additionally, video has grown to dominate the company’s platforms, which now represents 60% of time spent on both Facebook and Instagram, with Reels remaining the “primary driver” of that growth.
Driving the quarterly growth, in part, was a 20% jump in ad impressions across Meta’s family of apps, with the average price paid per ad ticking up by 6%.
The company also continued its pattern of slimming down its workforce, with the headcount now at 69,329, a 10% decrease year-over-year.
In the first quarter of 2023, Meta reported revenues of $28.65 billion, which was an increase of 3% from the same period in 2022. Net income fell 24% to $5.71 billion for the first quarter of 2023, compared to the year prior.
At the close of the fourth quarter of 2023, Meta was expecting the first quarter of 2024 total revenue to be in the range of $34.5 to $37 billion. The tech company also anticipated higher infrastructure-related costs during 2024, as Meta continues to increase capital investments.
Meta’s Reality Labs unit, which houses the tech company’s hardware and software development, continues to bleed cash, as Meta reported sales of $440 million for the first quarter of 2024 and $3.85 billion in operating losses.
The company also anticipated further losses for Reality Labs in 2024, as Meta continues to pour investments into AI development. In the fourth quarter of 2023, Meta’s Reality Labs unit saw an operating loss of $4.6 billion, due to higher headcount expenses and research and development spending.
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