Meta share prices falls more than 16% on sluggish forecast

Shares of Facebook parent company Meta plunged 16.5 per cent in after-hours trading on Wednesday after the company issued a sluggish second-quarter forecast and said it expects a substantial increase in operating losses in its Reality Labs division in 2024.

The California-based technology company said it expects second-quarter revenue to hover between $36.5 billion and $39 billion.

Its mid-point of $37.75 billion is nearly 18 per cent up on a yearly basis but below analysts’ average estimate of $38.3 billion.

Reality Labs, which includes augmented and virtual reality-related consumer hardware, software and content for the Metaverse, reported an operating loss of more than $3.8 billion in the first quarter of the year.

Susan Li, Meta’s chief financial officer, said the company expects Reality Labs' operating losses to increase “meaningfully year over year” in 2024 due to continuing product development and investments to further increase its ecosystem.

The company reported a 117 per cent annual increase in first-quarter net income to almost $12.4 billion.

Revenue during the January-March period rose 27 per cent to nearly $36.5 billion, marginally beating analysts’ expectations of $36.2 billion.

Meta’s shares closed 0.52 per cent down at $493.50 on Wednesday, giving the company a market value of $1.25 trillion.

But after the earnings announcement and issuance of weaker than expected outlook, the stock slumped 16.51 per cent in after-market hours to trade at $412.

The company's shares have dropped nearly 2 per cent in the past month.

In the first quarter, advertising impressions across Meta’s apps increased 20 per cent on a yearly basis while the average price for an advertisement soared by 6 per cent year on year.

Meta’s family of apps includes Facebook, Instagram, Messenger and WhatsApp.

"It's been a good start to the year," said Mark Zuckerberg, Meta founder and chief executive, during the earnings call.

"We are seeing healthy growth across our apps and we continue making steady progress building the metaverse as well.

“On the upside, once our new AI [artificial intelligence] services reach scale, we have a strong track record of monetising them effectively."

Meta, which employs more than 69,329 people, expects its full-year 2024 total expenses to be between $96 billion and $99 billion, updated from its prior outlook of $94 billion and $99 billion due to higher infrastructure and legal costs.

From the latest earnings announcement, Meta has stopped disclosing Facebook’s daily active users and monthly active users. It is now sharing a figure called “family daily active people”.

It stood at 3.24 billion in the last quarter, an increase of 7 per cent.

“Amid lower expected revenue and higher operational costs, which will fatally lead to less user acquisition spending, growth in family daily active people could very well hit negative numbers next quarter,” Thomas Monteiro, senior analyst at Investing.com, told The National.

"Against this backdrop, investors are pricing in tighter margins for Meta than previously expected, which means fewer competitive advantages, particularly in the innovation field, both VR and AI.”

The company's advertising revenue contributed nearly 97.7 per cent to overall sales in the first quarter, growing by about 26.8 per cent on an annual basis to more than $35.6 billion.

Revenue from other streams – including the Reality Labs unit – jumped 50.7 per cent on an annual basis to more than $820 million.

The company expects its 2024 capital expenditure to hover in the range of $30 billion and $35 billion, a $3 billion increase in the high end of its earlier range, as it accelerates its infrastructure investments to support its AI road map.

Ms Li said capital expenditures will continue to increase in 2025 as Meta invests “aggressively to support ambitious AI research and product development efforts”.

After Meta’s ambitious AI road map and escalating capital expenditure, analysts are optimistic.

“Meta still has several growth drivers that are likely to produce pick-up throughout the year as the company implements less ad-reliant monetisation strategies,” Mr Monteiro said.

“Both WhatsApp and the Metaverse show promise in that area and could be the drivers of the next leg up for the company."