Meta shares fell late Wednesday as the Facebook parent company’s first-quarter results apparently fell short of sky-high expectations. Although the company exceeded consensus expectations for both revenue and earnings, Metaplatforms (META) executives gave a lighter-than-expected sales forecast for the current quarter.
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Meanwhile, Meta’s push to be a leader in generative artificial intelligence is driving up its costs. The Menlo Park, California-based company increased its guidance on overall spending, citing infrastructure investments needed to support its “AI roadmap,” according to the company’s press release. All of that contributed to a more than 16% drop in today’s recent after-hours action in the stock market.
The harsh reaction comes despite the fact that Meta has set the bar high for its first quarter results. The company said in a news release that it earned $4.71 per share on revenue of $36.46 billion for the quarter ended in March. Analysts on average predicted Meta would post earnings of $4.32 per share on revenue of $36.14 billion, according to FactSet. Sales rose 27% year over year, while profits rose 114%.
Meta Guidelines for Q2 2024
The negative reaction for Meta stock could be driven by the current quarter’s projections. Meta targeted revenue between $36.5 billion and $39 billion, or $37.75 billion at the midpoint of its range. That was down from $38.25 billion in sales at the end of June quarter that analysts had expected, according to FactSet.
The midpoint of the range would represent approximately 18% year-over-year revenue growth for Meta’s second quarter, compared to revenue growth of 27%, 24.7% and 23.2% in Meta’s three previous quarters. But analysts expected Meta’s growth rate to slow this year as the company faced tougher year-over-year comparisons.
But rising costs may have caught some investors off guard.
Meta now expects capital expenditures this year to be between $35 billion and $40 billion, up from the company’s previous range of $30 billion to $37 billion. Meta expects total spending this year to fall between $96 billion and $99 billion, compared to a previously given range of $94 billion to $99 billion.
Jefferies analyst Brent Thill wrote in a client note Wednesday that “lighter-than-expected second-quarter revenue guidance and increases in overall costs and capex could weigh on the stock.”
On a call with analysts Wednesday, CEO Mark Zuckerberg highlighted that the company last week released updates to its Meta.ai chatbot and major language model Llama.
“I see the results our teams have achieved here as another important milestone in demonstrating that we have the talent, data and ability to scale the infrastructure to build the world’s leading AI models and services ,” said Zuckerberg. “And this makes me believe that we will need to invest significantly more in the coming years to build even more advanced models and the largest AI services in the world.”
Futures fall; Meta Dives, leads 5 major profit movers
Meta-stock: technical reviews
Before the earnings results, Meta fell half a percent and closed at 493.50 during Wednesday trading. Before the after-hours drop, shares were up just under 40% this year and 138% in the past 12 months. In terms of profit, the Meta share lagged behind alone Nvidia (NVDA) for best 2024 performance among the ‘Magnificent Seven’ stocks that fueled the 2023 stock market rally.
According to the report, Meta stock had a perfect IBD Composite Rating of 99, according to IBD Stock Checkup. The score combines five separate proprietary ratings into one rating. The best growth stocks have a composite rating of 90 or higher.
Furthermore, Meta’s IBD relative strength rating was 96 from 99.
Meta stocks are on several IBD stock lists, including Tech Leaders, IBD 50, Big Cap 20, and the premium IBD Leaderboard list.
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