Meta Stock Continues To Fall: Is The Era Of AI Gains Coming To An End?

Meta Platforms, Inc. META has been grappling with declining investor confidence despite delivering better-than-expected financials for the fiscal first quarter of 2024. Shares of META have declined by nearly 7% over the past month. 

The decline comes amid a flurry of activities to expand the company's operations as CEO Mark Zuckerberg focuses on an ambitious push into artificial intelligence (AI) and the metaverse.

Changing Key Areas of Focus

Mark Zuckerberg, the founder of Meta Platforms, kicked off the company’s recent earnings call by emphasizing the importance of artificial intelligence. However, despite his enthusiasm for future prospects, investors seemed skeptical.

The stock experienced a significant drop of up to 19% in extended trading on April 24, wiping out over $200 billion in market capitalization. This decline occurred despite Meta reporting better-than-expected profit and revenue for the first quarter.

"I think it's worth calling that out, that we've historically seen a lot of volatility in our stock during this phase of our product playbook where we're investing in scaling a new product but aren't yet monetizing it," Zuckerberg stated during the earnings call.

Zuckerberg highlighted future monetization strategies, including the integration of ads or paid content into AI interactions. He also discussed opportunities for expansion in the mixed-reality headset market, emphasizing the potential for AI integration in devices like AR glasses.

While Zuckerberg remains optimistic about the long-term potential of AI products, he cautioned investors about the multiyear investment cycle required for these ventures to become profitable services.

Despite the company’s efforts to innovate, Meta’s Reality Labs unit, responsible for developing the metaverse, continues to incur substantial losses. With sales of $440 million for the quarter and losses totaling $3.85 billion, the division’s cumulative losses since 2020 exceed $45 billion.

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Decelerating Growth 

Meta’s financial performance for the first quarter exceeded expectations, with earnings per share of $4.71 and revenue of $36.46 billion, surpassing Wall Street estimates of $4.32 and $36.16 billion, respectively. However, a light revenue forecast for the second quarter overshadowed these results, contributing to the stock sell-off.

Meta announced its projected sales for the second quarter, which are estimated to range between $36.5 billion and $39 billion. The midpoint of this forecast, at $37.75 billion, reflects an 18% year-over-year growth. However, this figure falls short of analysts’ average expectation of $38.3 billion.

The company is currently focusing on developing emerging technologies like glasses and mixed reality, which currently do not yield profits. Meta also disclosed that capital expenditures for 2024 are expected to range between $35 billion and $40 billion, marking an upward revision from the previous forecast of $30 billion to $37 billion. 

A More Stable Growth Prospect

Institutional investors have recently discovered a new strategy to hedge against market volatility and enhance portfolio stability – home equity investments (HEIs). HEIs allow investors to gain exposure to residential real estate by purchasing a portion of a homeowner’s equity in their property. In exchange for a lump sum payment, investors receive a share of the future appreciation of the home’s value.

According to Morningstar DBRS Senior Vice President Derek Moran, “Interest in this market is high and can be expected to continue growing, especially if interest rates remain high, and homeowner equity stays strong.”

HEIs offer compelling benefits for investors, including:

Diversification: HEIs provide exposure to the residential real estate market, helping to diversify portfolios heavily allocated to stocks and bonds.

Attractive returns: HEIs have the potential to generate strong returns, particularly in an environment of rising home prices. Originators often secure HEIs at a discount to market value, providing immediate upside potential.

Downside protection: HEI contracts typically include protective provisions that mitigate losses in the event of declining property values.

Uncorrelated returns: HEI performance is primarily driven by home price appreciation rather than interest rates or stock market fluctuations.

Now, with the emergence of innovative platforms like Cityfunds, retail investors can access this institutional-grade asset class with as little as $500. Cityfunds allows you to invest in the equity of carefully selected properties in prime locations, targeting potential appreciation while mitigating risk. 

Investors can choose to invest in specific cities through Cityfunds’ offerings, such as Miami, Austin and Los Angeles, gaining exposure to some of the strongest real estate markets in the country. These Cityfunds have demonstrated impressive appreciation, with shares of the Miami Cityfund up 14.7% already and up 10.9% for the Austin Cityfund.

You can easily get started by signing up on the Cityfunds website and choosing which cities you want to invest in. 

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Mark Zuckerberg, Meta CEO. Photo via Shutterstock