Meta drops 15% on weak outlook and high AI and metaverse spending

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Meta shares dipped after a disappointing Q2 revenue outlook and plans to spend nearly $100 billion this year as it aims to “invest aggressively” in its AI products.

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Meta drops 15% on weak outlook and high AI and metaverse spending

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Meta (META) shares dropped 15% in after-hours trading after a weak outlook for Q2 revenue and plans to “aggressively” ramp up spending in artificial intelligence this year — while its metaverse division is expected to continue to run at a loss.

The tech giant’s financial chief Susan Li said in its April 24 first-quarter results that its revenue guidance for the second quarter falls between $36.5 billion and $39 billion — below reported Wall Street expectations of $38.3 billion

Li expects expenses to rise to between $96 billion to $99 billion — up from $94 billion to $99 billion due to “higher infrastructure and legal costs.”

She also bumped full-year 2024 capital expenditures to a top end of $40 billion from its prior $37 billion as it would “invest aggressively to support our ambitious AI research and product development.”

Meta posted Q1 revenues of $36.46 billion — a 27% year-on-year (YOY) jump that surpassed Wall Street analysts’ Zacks estimate of $36.28 billion by 0.48%.

Its earnings per share doubled YOY to $4.71, beating estimates of $4.32 per share.

Its metaverse building Reality Labs lost $3.85 billion in Q1 — down from the nearly $4 billion it lost in Q1 2023 — Meta expects these losses to increase year-on-year as it bankrolls the division’s product development.

Highlighted are Reality Labs’ operating losses which saw a quarter-on-quarter drop of 17.2%. Source: Meta

“An increasing amount of our Reality Labs work is going toward serving our AI efforts,” said CEO Mark Zuckerberg on an earnings call.

He expected a “multi-year investment cycle” before Meta “fully scaled” its AI businesses.

Related: UK watchdog worries about tech giants’ AI market control

“Building the leading AI will also be a larger undertaking than the other experiences we’ve added to our apps and this is likely going to take several years,” Zuckerberg said.

Meta shares slid 15.4% after-hours on April 24 to $417.22 following it closing the day down 0.5% at $493.50, according to Google Finance.

Meta slid to an after-hours low of $402.98 before slightly recovering. Source: Google Finance

Meta is, however, still up 42.5% year-to-date after hitting an all-time high of $527.34 earlier this month on April 5.

On April 18 Meta launched its Llama 3 AI model which it rolled out in its Meta AI chatbot available across Facebook, Instagram, WhatsApp and Facebook Messenger.

The Meta AI chatbot is reported to have posted bizarre interactions, telling a Facebook group for New York mothers that it has a child.

Meta AI claiming it has a child. Source: Aleksandra Korolova/X

Meta, however, claimed human evaluators ranked Llama 3 higher than other models including OpenAI’s ChatGPT-3.5.

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