Mark Zuckerberg is once again asking investors for patience. Rather, they are on guard.
After Meta Platforms Inc. revealed it would spend billions more than expected this year, driven by investments in artificial intelligence, the company's CEO went out of its way to appease Wall Street. I tried my best. But the company's spending forecast, coupled with slower-than-expected sales growth, sent the stock down as much as 16% in New York on Thursday morning, its steepest decline since October 2022.
It was a familiar pitch for Zuckerberg. Mr. Zuckerberg has previously said that the company's bets on futuristic technology will eventually pay off, and that prudent shareholders should stick around.
“Smart investors will recognize that this product is growing and that there is a clear monetization opportunity there even before revenue materializes,” he said on Meta's first-quarter earnings conference call. I think there is,” he said.
This strategic shift may have surprised investors, as the company has been aggressively cutting costs in recent quarters to boost profits. The company's stock price has risen 39% since the beginning of the year as of market close, and was trading near all-time highs last month.
The company attributes some of its recent user growth and advertising success to AI, citing improved recommendation algorithms. Meta has been one of the best-performing stocks among big tech companies.
Facebook's parent company is currently dedicating more resources than ever to artificial intelligence, which requires significant investments in computing power and is vying for supremacy in this rapidly evolving technology. It's part of an arms race with rivals from Alphabet Inc. to Microsoft Corp. Zuckerberg warned that the investment will be a “meaningful” increase and that it will take a long time, perhaps years, for the social networking company to turn a profit, but understand the long-term benefits that AI will bring. I urged him to do so.
Zuckerberg took a similar tack when Meta pivoted to building the so-called Metaverse and other futuristic technologies like VR headsets and smart glasses. Those efforts cost a lot of money. Reality Labs, Meta's in-house division spearheading these efforts, suffered losses of $16 billion in 2023. But Zuckerberg credits the progress the group has made over the past year, particularly its success with AI chatbots and Ray-Ban smart glasses. Conviction that further investment is needed.
“We've become more optimistic and ambitious about AI,” Zuckerberg said. “We are in a position to prove that we can build cutting-edge models and become the world's leading AI company. And that opens up many additional opportunities, not just the most obvious for us. I will bring it.”
Achieving that vision will cost money. The Menlo Park, Calif.-based company has raised its annual cost estimate and now believes capital expenditures will be between $35 billion and $40 billion. The company previously estimated costs related to servers, AI hardware, data centers and more would be between $30 billion and $37 billion.
“We expect capital spending to continue to increase next year as we invest aggressively to support our ambitious AI research and product development efforts,” Chief Financial Officer Susan Lee said in a statement. “I am doing so,” he said.
At the same time, the social networking company predicted second-quarter revenue of $36.5 billion to $39 billion, but the midrange of its forecast was below analysts' average forecast.
Those metrics overshadowed an otherwise strong first quarter in which sales were $36.5 billion, up more than 27% year-over-year. Profits more than doubled to $12.4 billion.
“Despite all of Meta's bold AI plans, there's no reason to take focus away from the core of the business – its core advertising activities,” Hargreaves Lansdown analyst Sophie Land-Yates said in a note on Wednesday. I can't go there,” he said. “That doesn’t mean ignoring AI, but it does mean spending needs to be targeted and aligned with a clear strategic view.”
Last quarter, Meta announced a $50 billion share buyback in addition to its first-ever quarterly dividend. The move was an effort to placate investors frustrated by the company's aggressive spending on technology that hasn't yet yielded full returns.
In recent months, Zuckerberg has made AI a priority, with OpenAI releasing its chatbot ChatGPT in 2022, sparking a frenzy of competition and development among big tech companies. The focus has been on technology again. Meta has begun implementing his AI into every aspect of the business, from Instagram and Facebook to smart glasses.
The company announced plans for a new $800 million data center in January and is also developing its own chips for artificial intelligence services. Meta is also working on several new versions of its large-scale language model, known as Llama, to power chatbots and other AI services.
The company reiterated its broader spending plans for 2024, saying it will spend between $96 billion and $99 billion in the calendar year, up slightly from its lower-end target of $94 billion to $99 billion. The company previously said much of the money would go toward infrastructure costs, as well as long-term investments in augmented reality and virtual reality.
Mehta's mixed reports come on the same day that President Joe Biden signed a bill forcing TikTok's parent company ByteDance to sell the popular video service in the United States or face a ban. Announced. Meta's short video Reels offering is a clone of his TikTok, so the potential removal of a major competitor could be a boost to Meta's advertising business.
Lee said on a conference call with analysts that Reels accounts for about 50% of the time people spend on Instagram. When she was asked specifically about the TikTok bill, she said it was too early for the company to understand the potential impact.
Meta has had a turbulent few years in recent years, with a spike in user numbers and activity on the platform during the coronavirus lockdown, followed by a decline in advertising activity in 2022. Meta also hired heavily when the economy was good, leading to about 10,000 layoffs. 2023 is what Zuckerberg called “the year of efficiency.”
These painful moves paved the way for the significant increase in profits the company is currently seeing. First-quarter revenue was a record high for the period. More and more people are coming back to Meta's products.
Zuckerberg said the old Twitter-like Threads app, released last July, now has more than 150 million monthly active users, including Taylor Swift. .
