Unlock the Editor’s Digest for free
Roula Khalaf, editor of the FT, selects her favorite stories in this weekly newsletter.
Mark Zuckerberg has stoked investor fears that he would fail to control costs at Meta after promising to increase spending and turn the social media group into “the world’s leading AI company”, sending its shares tumbling on Wednesday after business hours plummeted by more than 15 percent.
Meta’s earnings release showed that revenue for the company – whose platforms include Facebook, Instagram and WhatsApp – rose 27 percent to $36.5 billion in the first three months of 2024, just above analyst expectations of $36.2 billion dollars.
But Meta also raised the cap on its full-year investment guidance from $37 billion to $40 billion to “continue to accelerate our infrastructure investments in support of our artificial intelligence (AI) roadmap.” Last year, capital expenditures totaled $28.1 billion.
It added that it expected capital spending to continue rising next year, and also raised the lower range of its full-year 2024 spending guidance from $94 billion to $96 billion. The company expects revenue of between $36.5 billion and $39 billion for the current quarter, compared to consensus expectations of $38.3 billion.
Last year, Meta’s CEO tried to keep Wall Street happy against the backdrop of tough macroeconomic conditions, job losses, cost cuts and labeling 2023 as a “year of efficiency.”
However, Zuckerberg is under increasing pressure to keep up with the rapidly advancing AI race with Silicon Valley groups like OpenAI, Microsoft and Alphabet’s Google, which has forced him to cut investments in the costly technology and infrastructure needed to run his to support and implement plans. Microsoft and Alphabet are expected to provide updates on their own AI efforts in Thursday’s earnings reports.
Zuckerberg said on a call with analysts that he believed Meta would need to “invest significantly more in the coming years to build even more advanced models and the world’s largest AI services.” These expenses would have to “grow meaningfully before we can generate much revenue from some of these new products,” he added.
The after-hours decline in Meta’s stock wiped billions of dollars from its market value. It’s a sharp turnaround for a stock that has risen more than 40 percent this year after being in record territory since its huge fourth-quarter earnings announcement in February, in which it declared its first dividend and signaled a strong recovery from the recent stock market crash . limpness.
As part of its efforts to develop and integrate AI tools into its products, Meta has focused on introducing chatbots into its social media apps to increase engagement, as well as features for advertisers, and improving the targeting of its feeds. This month it released a new version of the AI model behind its chatbots, Llama 3, which it said vastly improved its capabilities, including the ability to reason. Meta also unveiled a new generation of its custom AI chips.
In his opening remarks to investors on Wednesday’s earnings call, during which shares continued to fall, Zuckerberg sought to allay investor fears about the spending by pointing to the company’s “strong track record” of generating income.
To generate revenue, Meta could scale up business messaging, introduce ads into user interactions with AI chatbots and task groups with using the larger AI models, he said.
Zuckerberg also said Meta would continue to invest in its longer-term ambitions to build an avatar-filled metaverse, focusing on developing what he called “wearable AI”: smart glasses with built-in AI assistant.
Reality Labs, Meta’s virtual and augmented reality business, posted a loss of $3.85 billion in the first quarter, about the same as the previous year, with the company adding that it continued to expect operating losses to increase year-over-year. years “would increase significantly”.
“Mark Zuckerberg’s ‘heads-up’ was reminiscent of what he once said about the metaverse. That didn’t exactly go that well, but this is different from Meta’s metaverse gamble because AI now has real and practical use cases,” said Mike Proulx, research director at Forrester.
“The question remains whether Meta can compete in the AI race and at the same time maintain a strong financial position. To do this, expect more ‘metaverse’ resources to be diverted from Reality Labs to Meta’s AI initiatives,” he added.