$Meta Platforms (META.US)$The stock price fell sharply by 10.56% to $441.38 on April 25, after the parent company of Facebook and Instagram announced better-than-expected first-quarter results, while also saying it would drastically increase spending plans and invest in artificial intelligence software and services.
Meta CEO Mark Zuckerberg (Mark Zuckerberg) recently regained some of the goodwill from Wall Street has almost been offset by news of the company's large-scale capital expenditure plans.
The social media giant reported strong first-quarter earnings on Wednesday, but the revenue outlook is slightly weak. The company also plans to increase capital expenditure to $35 billion to $40 billion in 2024, mainly investing in hardware infrastructure for artificial intelligence.
But investors are clearly still worried that Meta's spending will also include more virtual and augmented reality projects. The first question raised by analysts during Wednesday's conference call was to try to get Zuckerberg to quantify the “length and depth” of investment in artificial intelligence and reality labs. Reality Labs is Meta's virtual reality and augmented reality division.
“I think smart investors will see products scaling up, and there are clear monetization opportunities even before revenue is realized,” Zuckerberg said. “I think we've seen this. With the advent of Reels and Stories (short video apps or features of Meta's Instagram app) and the shift to mobile devices, basically all of these products are where we first build inventory for a while before monetizing them.”
Investors will remember that until October 2022, Altimeter Capital, one of Meta's investors, wrote a harshly worded letter to Zuckerberg calling for the company to become healthier and more focused. Two weeks ago, Meta launched a $1,500 virtual reality helmet, but there's little sign that metaverse apps like its “Horizon Worlds” (Horizon Worlds) are trending.
Meta's shares plummeted 16.5% in after-hours trading on Wednesday, and if these losses materialize in Thursday's trading, the company would lose more than $200 billion in market capitalization.
Zuckerberg tried to highlight the promising side of the reality lab business, pointing out that the smart glasses sold by the company in partnership with Ray Ban (Ray Ban) have sold out of various styles and colors. These smart glasses have a camera that can record video and audio, and users can post them on social media, but the artificial intelligence part of the glasses currently looks insignificant at best. These smart glasses are now called “wearable artificial intelligence” by Zuckerberg, and they can be controlled with a few voice commands.
But even so, in the first quarter, Reality Labs reported operating losses of $3.8 billion and revenue of $440 million. Meta's total revenue grew strongly by 27%, net revenue increased significantly, and the number of employees decreased by 10%. It's clear that Zuckerberg is using this extra buffer to invest more money into his favorite metaverse projects.
On the other hand, the company's spending on AI hardware and software infrastructure (which may include developing its own chips) appears to be a better investment. Zuckerberg said that 30% of posts on Facebook are posted through an artificial intelligence recommendation system, while more than 50% of content on Instagram is recommended by artificial intelligence, and the artificial intelligence system is becoming “an important part of how we create value for advertisers,” he said.
Many analysts who are still optimistic about Meta pointed out that the company's strong revenue and profits were the reason they avoided selling in anticipation of Thursday. But it looks like Zuckerberg's “year of efficiency” is over, and Wall Street may want to put more restrictions on him and Meta.
Editor/Jeffrey