• Meta CEO Mark Zuckerberg focused his earnings call remarks on the company’s investments in AI and the metaverse, concerning investors.
• Meta’s stock plunged as much as 19% in extended trading, wiping out over $200 billion in market value, despite beating earnings and revenue expectations.
• Zuckerberg acknowledged the volatility, stating that Meta has historically seen stock fluctuations during phases of investing in new products before monetization.
Meta’s stock plunged nearly 20% in after-hours trading on Wednesday, wiping out over $200 billion in market value, after the company issued weak revenue guidance for the second quarter. The massive drop came despite Meta beating profit and revenue expectations for the first quarter.
Meta’s Investments in AI and Metaverse Bleeding Cash
During the earnings call, CEO Mark Zuckerberg spent most of his time talking about Meta’s long-term investments in artificial intelligence (AI) and the metaverse. He touted the company’s advancements in AI, including its new large language model Meta Llama 3 and the Meta AI platform.
Zuckerberg also discussed Meta’s efforts in virtual and augmented reality. This includes the Meta Quest headsets, AR glasses, and the operating system that powers its hardware.
However, Meta’s Reality Labs division, which houses these metaverse investments, continues to lose significant amounts of money. Reality Labs reported $440 million in revenue for Q1 2022 but $2.96 billion in losses. The division has lost over $45 billion since the end of 2020.
Zuckerberg Predicts Multi-Year Investment Cycle
Zuckerberg acknowledged that monetizing Meta’s AI and metaverse investments will take time. He expects a “multi-year investment cycle” before these products can be scaled into profitable services.
Meta CFO Susan Li echoed this long-term view, saying the company first needs to develop advanced AI models and scale its products before they will generate meaningful revenue.
Zuckerberg expressed confidence in this strategy, pointing to Meta’s track record of long-term investments in areas like mobile and Stories paying off financially. However, he admitted that building leading AI capabilities will likely take several years to generate returns.
Meta Stock Price Rebound in 2023
After a brutal 2022, Meta’s stock price rallied in early
2023 as Zuckerberg enacted cost-cutting initiatives. The company slashed headcount and eliminated unnecessary spending in a bid to improve efficiency.
This renewed Wall Street’s confidence, nearly tripling Meta’s stock price so far this year. However, Zuckerberg’s focus on long-term investments over near-term profitability during the Q1 earnings call sent the stock tumbling once again.
Light Q2 Revenue Outlook Adds to Selloff
Adding to investor concerns, Meta issued lighter-than-expected revenue guidance for Q2 2022. The company said it expects Q2 revenue between $26-28.5 billion, falling short of analyst estimates of over $30 billion.
This disappointing outlook, combined with Zuckerberg’s emphasis on future ambitions over present profitability, triggered a massive selloff of Meta shares. While Zuckerberg urged investors to take a long-term view, many are clearly losing patience with the company’s swelling losses.
Conclusion
Meta’s plunge shows Wall Street’s frustration with massive spending on experimental bets like the metaverse that have yet to pay off financially. While Zuckerberg aims to transform the company for the future, investors are focused on bottom line results today. The Q1 earnings call highlighted this divide between Zuckerberg’s long-term innovation and investors’ short-term profit demands. Meta must strike a balance between investing in the future and delivering results in the present to win back shareholder confidence.
