Meta($META(META)), the parent company of Facebook and Instagram, reported its earnings for the first quarter of 2024. The company posted a solid top and bottom line beat. However, its outlook has raised some concerns as the midpoint of its revenue projections for Q2 fell below consensus and it raised its expense and capex guidance.

Meta was the first mega cap tech name to report Q1 earnings. If you recall, Meta had, arguably, the best fourth quarter so there was a lot of anticipation of another blow out quarter. The Q1 results were fine but the outlook fell short of expectations, sending shares lower. 

Meta exceeded bottom line expectations with $4.71 earnings per share, $0.39 better than the consensus of $4.32. The company's revenues grew by 27.3% year-over-year to $36.45 billion, surpassing the $36.14 billion consensus. 

In terms of key metrics, the Family daily active people (DAP) reached an average of 3.24 billion for March 2024, an increase of 7% year-over-year. Ad impressions delivered across the Family of Apps increased by 20% year-over-year, while the average price per ad increased by 6%. 

For Reality Labs, Meta expects operating losses to significantly increase year-over-year due to ongoing product development efforts and investments to further scale the ecosystem. 

The company issued guidance for Q2, with revenue expectations of $36.5-39.0 billion, compared to the $38.25 billion consensus, placing the mid-point below estimates.

Meta raised the low end of its FY24 total expense guidance to $96-99 billion, from $94-99 billion, primarily due to higher infrastructure and legal costs. The company increased its FY24 capex guidance to $35-40 billion, from $30-37 billion, as it continues to accelerate its infrastructure investments to support its artificial intelligence (AI) roadmap. 

While Meta is not providing guidance for years beyond 2024, it expects capital expenditures to continue to increase next year as it invests aggressively in AI research and product development efforts.

In late trading on Wednesday, the stock dropped sharply after the company's earnings report, primarily due to the increased spending plans for the year. Despite the drop, the first quarter results were strong, with revenue and user growth outpacing expectations. 

In conclusion, Meta's Q1 2024 earnings report showed positive growth in key metrics and revenues, while the company continues to invest heavily in AI and Reality Labs initiatives. While the increased spending plans may have initially caused concern, the long-term potential of these transformative technologies could significantly impact the company's future growth and performance.

The news is also weighing in on advertising plays like GOOG, PINS, and SNAP. We would note that one of the primary issues for Meta was its high expenses which may be more company-specific rather than an industrywide dynamic.