Meta Platforms Bought Some Time With Long-Term AI Potential

On Wednesday, Meta Platforms Inc META topped Wall Street estimates with its first quarter results. But, stock plunged 16% due to a light revenue guidance that overshadowed the fact its revenue grew at a fastest quarterly rate since 2021 and net income more than doubled. Like Apple Inc AAPL, Meta didn’t talk much about AI, until now. During the earnings call, Meta CEO Mark Zuckerberg detailed the company’s AI roadmap, hinting at a shift from chatbots to AI agents, highlighting confidence in the company’s leadership on the AI front.            

First Quarter Highlights

For the first three months of the year, Meta reported revenue expanded 27% YoY to $36.46 billion, surpassing LSEG’s estimate of $36.16. Net income more than doubled to $12.37 billion or $4.71 per share, surpassing LSEG’s estimate of $4.32 as the Facebook-parent successfully lowered its sales and marketing costs by 16% compared to last year’s comparable quarter.  

As for its userbase metric, Meta revealed there were 3.24 billion family daily active people in March, which represents a 7% YoY rise while average revenue per user in the quarter was $11.20.

Digital advertising makes 98% of Meta’s revenue and it rose 27% YoY to $35.64 billion. Therefore, building leading AI has a lot to do with turning those efforts into ad dollars.

The Metaverse Continues To Bleed Cash

With revenue of $440 million, Reality Labs unit reported a loss of $3.85 billion. Since the end of 2020, Meta’s most important division it based its new identity on lost more than $45 billion. 

2024 Guidance

As for the second quarter, Meta guided for revenue between $36.5 billion and $39 billion, while analysts on average expected $38.3 billion.

Meta guided for capital expenditures in the range between $35 billion and $40 billion, while previously forecasting $30 billion to $37 billion. The increase is due to accelerated AI investments.

Meta bought some time with long-term potential of AI.

After a brutal 2022 during which Meta lost about two thirds of its value and figuring out how to live in a new privacy environment that Apple cooked up. But, Meta or more precisely, Zuckerberg, made sure that sure that smaller advertisers knew that, thanks to Apple and the privacy changes it introduced, it got more expensive to reach their potential customers. Apple and Meta feud, or more precisely, the feud of their respective CEOs has been going on since 2014, at least. But Apple is well used to attacks regarding its App Store commissions and Tim Cook often simply leaves such comments without a response. But, Meta clearly preserved its users and ad dollars, and it seems to have succeeded to restore Wall Street’s confidence with its cost cuts efforts it kicked off early last year, marking 2023 as its year of efficiency. Although AI still didn’t provide the lift that Meta needs, Zuckerberg succeeded to convince Wall Street of the company’s AI leadership potential, which will take time to be realized through the company’s financials. But, then again, Meta certainly has a strong record of monetizing its services. 

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