Meta's Robust Earnings Outshine AI Cost Fears but Stock Sinks 3.1%
1min read Meta, the world’s largest social media company, recently released its third-quarter earnings report, revealing profits that exceeded analyst expectations. Despite this, the company warned of a significant increase in AI-related infrastructure spending for the coming year, dampening investor enthusiasm. The stock experienced a 3.1% drop in after-hours trading.
Meta reported earnings per share of $6.03, surpassing the forecasted $5.25. Their revenue reached $40.59 billion, also exceeding analysts' predictions of $40.29 billion. The company anticipates fourth-quarter revenue between $45 billion and $48 billion, with a midpoint slightly above the analyst forecast. Advertising revenue remains a critical source of Meta's income, contributing significantly during peak seasons like the holidays.
The company disclosed total expenditures for the third quarter at $23.2 billion, with capital expenditures of $9.2 billion, forecasting a slight improvement by reducing total expenditure estimates to between $96 billion and $98 billion for the year.
Investor caution is sparked by Meta's projection that infrastructure costs will accelerate next year, driven by increased depreciation and operating costs coinciding with infrastructure expansion. This echoes investor concerns from earlier in the year when higher-than-expected spending projections led to a temporary $200 billion market cap reduction.
Meta, in its pursuit of leveraging artificial intelligence, is investing heavily in data centers akin to other tech giants, although the company does not expect immediate returns from these ventures. Analysts highlight the necessity for Meta to demonstrate the capacity to manage rising AI costs while maintaining its digital advertising revenue, a core component of its business model.
In response to skepticism about rising personnel costs, Meta's CFO, Susan Li, emphasized enhancing departmental efficiency, indicating a focus on sectors with workforce growth. Reality Labs, responsible for VR products, registered a $4.4 billion third-quarter loss, slightly below expectations, with continued losses anticipated.
CEO Mark Zuckerberg recognized the concerns regarding infrastructure spend, reaffirming his belief in significant AI opportunities. With about 500 million monthly active users engaged with Meta AI chatbots, the company showcases considerable growth potential in AI-driven user engagement.
Analysts remain cautiously optimistic about AI's role in enhancing user interactions with existing platforms, predicting that AI investments might enrich user experience and content alignment even amidst slowing user base growth. As part of its strategy, Meta continues to adapt its business to harness AI's potential, hoping to offset some of the expenses with increased user interaction and advertising efficiencies propelled by AI advancements.
