On Wednesday evening, Meta, the parent company of Facebook, experienced a significant decline in its stock value following the release of its first-quarter financial results, which apparently fell short of exceedingly optimistic expectations. Despite surpassing consensus estimates for both sales and earnings, Meta Platforms (META) executives provided a sales forecast for the current quarter that was below what analysts had anticipated.
Adding to the financial strain, Meta’s ambitious endeavor to establish itself as a frontrunner in generative artificial intelligence has incurred additional costs. The company, headquartered in Menlo Park, California, revised its expense guidance upwards, citing the necessity for infrastructure investments to support its AI initiatives, as stated in the company’s news release. Consequently, Meta’s stock experienced a sharp decline of over 16% in after-hours trading.
This reaction from investors is particularly notable given Meta’s commendable performance in the first quarter, surpassing already lofty expectations. According to a news release from the company, Meta reported earnings of $4.71 per share on sales totaling $36.46 billion for the quarter ending in March. Analysts, on average, had forecasted earnings of $4.32 per share on sales of $36.14 billion, according to FactSet data. Notably, sales surged by 27% compared to the previous year, while earnings saw a remarkable increase of 114%.
Meta’s Stock Slips on Q2 Revenue Guidance
The negative response to Meta’s stock may have stemmed from its projections for the current quarter. Meta provided guidance for sales ranging between $36.5 billion and $39 billion, with a midpoint of $37.75 billion. This fell short of analysts’ expectations of $38.25 billion in sales for the quarter ending in June, according to FactSet.
The midpoint of Meta’s projected range suggests approximately 18% year-over-year revenue growth for the second quarter, compared to growth rates of 27%, 24.7%, and 23.2% in the company’s previous three quarters. Analysts had anticipated a slowdown in Meta’s growth rate this year, considering the company faces tougher year-over-year comparisons.
However, the unexpected increase in costs may have surprised some investors. Meta now anticipates capital expenditures of $35 billion to $40 billion for the year, up from the previous range of $30 billion to $37 billion. Overall expenses for the year are projected to range between $96 billion and $99 billion, compared to the earlier range of $94 billion to $99 billion.
In a note to clients on Wednesday, Jefferies analyst Brent Thill expressed concern that “lighter than expected Q2 revenue guidance and increases in the total expense and capex guides could weigh on the stock.”
During a call with analysts, Chief Executive Mark Zuckerberg emphasized recent updates to Meta’s Meta.ai chatbot and Llama large language model.
“I view the results our teams have achieved here as another key milestone in showing that we have the talent, data, and ability to scale infrastructure to build the world’s leading AI models and services,” Zuckerberg stated. “And this leads me to believe that we should invest significantly more over the coming years to build even more advanced models and the largest scale AI services in the world.”
Meta Stock Sees Modest Decline Pre-Earnings Despite Strong Yearly Performance
Before the release of its earnings report, Meta experienced a slight decrease of half a percent, closing at $493.50 in Wednesday’s trading session. However, prior to the subsequent after-hours downturn, Meta’s shares had exhibited impressive gains, boasting nearly a 40% increase year-to-date and a remarkable 138% surge over the past 12 months. Among the “Magnificent Seven” stocks that played a pivotal role in fueling the stock market rally in 2023, Meta stock trailed only Nvidia (NVDA) for the top performance in 2024.
As anticipation built for its earnings announcement, Meta stock was distinguished by its stellar IBD Composite Rating of 99, as reported by IBD Stock Checkup. This Composite Rating amalgamates five distinct proprietary ratings into a single score, serving as a comprehensive measure of a stock’s overall strength. The most promising growth stocks typically boast a Composite Rating of 90 or higher.
Additionally, Meta’s IBD Relative Strength Rating stood impressively at 96 out of 99, further underscoring the company’s robust position in the market. These strong ratings reflect Meta’s solid performance and investor confidence leading up to its earnings report, despite the minor dip observed in pre-earnings trading.
