meta platform (META) late Wednesday posted first-quarter earnings results that beat expectations, with year-over-year revenue growth up 27%. But Meta stock fell sharply after the company gave lower-than-expected revenue guidance and raised spending expectations, citing its artificial intelligence incentives.
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One analyst described Meta as a victim of “AI fever”. Chief Executive Mark Zuckerberg defended the company’s plans to “invest significantly more in the coming years” to advance its AI ambitions. But the report triggered a selloff. Meta stock fell more than 10.5% to close at 441.38 on the stock market today. The decline pushed Meta stock to its lowest level since late January.
The harsh reaction comes despite Meta clearing a high bar for its first quarter results. The company said in a news release that it earned $4.71 a share on sales of $36.46 billion in the March-ending quarter. According to FactSet, analysts had predicted Meta would earn $36.14 per share on sales of $4.32 billion. Sales increased 27% year over year while earnings increased 114%.
Meta Guidance for Q2 2024
However, Meta’s guidance for the current quarter missed the target. Meta guided for sales of $36.5 billion to $39 billion, or the midpoint of its range of $37.75 billion. This was down from sales of $38.25 billion at the end of June That’s the quarter that analysts were expecting, according to FactSet.
The midpoint of its range would represent approximately 18% year-over-year revenue growth for Meta’s second quarter, compared to sales growth of 27%, 24.7% and 23.2% in Meta’s last three quarters. But analysts expect Meta’s growth rate to slow this year, as the company faced poor year-over-year comparisons.
But rising costs have unnerved some investors.
Meta’s AI ambitions
Meta estimates capital spending this year will be between $35 billion and $40 billion, up from the company’s prior range of $30 billion to $37 billion. Meta expects total spending for the year to fall between $96 billion and $99 billion, up from the previous range of $94 billion to $99 billion.
On a call with analysts on Wednesday, Zuckerberg highlighted that the company released updates to its Meta.AI chatbot and Llama large language model last week.
Zuckerberg said, “I see the results achieved by our teams here as another important milestone in showing that we have the talent to scale the infrastructure to build world-leading AI models and services, There’s data and capacity.” “And that leads me to believe that we should invest significantly more in the coming years to build even more advanced models and the largest-scale AI services in the world.”
Brian White, an analyst at Mones Crespi Hardt, described the market’s reaction to Meta in a client note titled “AI fever claims another victim.” He maintained a buy rating and price target of 540. But he cautioned about challenges ahead for the company.
“Meta’s AI ambitions are driving spending and we expect more AI casualties,” White wrote in a note to clients on Wednesday. “We believe Meta is well-positioned to benefit from the digital advertising trend, innovate with AI, take advantage of a lower cost structure, and capitalize on the potential decline of TikTok; however, regulatory scrutiny is ongoing And we believe the darkest days of this economic quagmire are ahead of us.
futures fall; Meta Dives, Leads 5 Major Earnings Movers
advertising market power
Meanwhile, a strong quarter for Meta’s advertising business was overshadowed by AI spending concerns.
Ad pricing increased 6% year over year compared to a 2% increase in the previous quarter. The company again saw strong growth from ad-buyers in the Asia-Pacific region, where spending increased 41% year over year. Meta has benefited from e-commerce businesses like Teemu in China – which are buying advertising to reach buyers in other markets. But Meta CFO Susan Lee cautioned that Meta will now “end a period of increasingly strong demand” from Chinese advertisers.
Still, Meta’s strong ad performance doesn’t seem to be helping other social media stocks. snapchat parent snap (SNAP) is down about 5% in premarket trading. reddit (RDDT) and pinterest (PIN) were also low in early trade. They may be influenced by concerns about the guidance of the meta. Snap reports earnings later Thursday, while Reddit and Pinterest are scheduled next week.
Bernstein analyst Mark Shmulik maintained a buy rating for Meta following the report. But he reduced his price target to Rs 565 from Rs 590. Nevertheless, he highlighted that the meta is back in “aggressive” markets after the 2022 decline that put it on the defensive last year.
“Meta has handled every challenge that came its way — TikTok, privacy, cash burn — and came out the other side stronger, leaner, and proud,” Shmulik wrote. “There’s a difference between defense and offense, where expectations are higher and uncertain. But offense is more fun, right? We’re buyers.”
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Meta Stock: Technical Rating
The decline of Meta stock will have a big impact on its strong run. Before the decline late Wednesday, Meta stock was only behind NVIDIA (NVDA) for the best-performing “Magnificent Seven” stocks in 2024, which helped power the stock market rally in 2023.
According to the report, Meta stock had an ideal IBD Composite Rating of 99, according to IBD Stock Checkup. The score combines five different proprietary ratings into one rating. The best growth stocks have a Composite Rating of 90 or better.
Additionally, Meta had an IBD Relative Strength Rating of 96. Out of 99.
Meta stock is on several IBD stock lists, including the Tech Leaders, IBD 50, Big Cap 20, and premium IBD Leaderboard lists.
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