Meta Shares Plummet Despite Strong Q1 Results

Meta’s stock fell over 15% in after-hours trading on Wednesday, as the company’s lighter-than-expected second-quarter forecast overshadowed its robust first-quarter earnings. Despite revenue rising by 27% from $28.65 billion in the same period last year to $36.64 billion and net income more than doubling to $12.37 billion, or $4.71 per share, the forecast led to investor concerns.

The expected revenue for the second quarter is estimated to be between $36.5 billion and $39 billion, with a midpoint of $37.75 billion, representing 18% year-over-year growth. This figure is below analysts’ average estimate of $38.3 billion, triggering the selloff. The drop was exacerbated during the earnings call when CEO Mark Zuckerberg discussed the company’s investment in non-profitable ventures like glasses and mixed reality.

Meta’s pivot to a “year of efficiency” in 2023, marked by a focus on streamlining operations, had previously fueled a stock rally, with the stock rising about 40% this year after nearly tripling last year. This focus on efficiency came at a significant cost: the company cut about 21,000 jobs in the first half of 2023, leading to a 10% decrease in headcount year-over-year. Zuckerberg’s strategy aimed to eliminate unnecessary projects and streamline operations, but the mixed signals from the earnings call caused investor uncertainty.

The company now reports “family daily active people” instead of traditional user metrics like daily and monthly active users. In March 2024, this figure was 3.24 billion, representing a 7% increase from the previous year.

Meta’s ad revenue, a major contributor to its business, jumped 27% to $35.64 billion, indicating that the company is regaining digital ad market share after a challenging 2022. This resurgence is partially due to a rebound in advertising from Chinese discount retailers like Temu and Shein. However, analysts warn that slower spending from these advertisers could pose risks in the future.

Capital expenditures for 2024 are projected to be between $35 billion and $40 billion, reflecting the company’s focus on accelerating infrastructure investments to support its artificial intelligence (AI) roadmap.

Meanwhile, the Reality Labs division, responsible for Meta’s ventures into the metaverse, continues to bleed cash, reporting sales of $440 million for the quarter and a loss of $3.85 billion. This brings total losses since the end of 2020 to over $45 billion, with analysts predicting an operating loss of $4.31 billion for the division.

Meta’s strong financial results were overshadowed by concerns about its forward guidance and ongoing challenges in its Reality Labs unit. The call with analysts at 5 p.m. ET aimed to address these issues and provide more clarity on the company’s future direction.