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In another stunning set of drops for Wall Street's favorite A.I. firms, Facebook parent Meta could lose most of its gains made after Q4 2023's earnings report. This report was historic since it saw the social media company declare a dividend for the first time and transform itself into a stable source of earnings for shareholders. However, Meta's stock is now down in the double digits following its latest earnings report as high expenses and a guidance miss played into worries A.I. growth being costly to fund. If these losses hold tomorrow, then it could wipe more than $200 billion in market value from the trillion dollar firm.
Meta Shares Sink After Quarterly Beat Fails To Overcome Slower Guidance & Inflationary Costs
Heading into today's release, Meta had been making big moves in the artificial intelligence arena, where it is competing with Microsoft backed OpenAI. Meta's decision to make its Llama model open source heading into the earnings release is a move that stood out in contrast to most high end models that are closed source. An open source model enables all developers to use resources to make changes to the code of the model, and it benefits Meta in several ways, including lower costs, according to CEO Mark Zuckerberg.
Zuckerberg led the Q4 2023 call by explaining the benefits of open source artificial intelligence models in a large chunk of his opening comments. Apart from benefiting from the decision to make Llama open source, Zuckerberg shared that Meta's current A.I. portfolio sets the firm up to develop artificial general intelligence or AGI. AGI is software that is capable of thinking and making decisions similar to a human level, according to Stanford University.
During the latest call, the Meta executive added that his firm is taking a broad approach to developing A.I. solutions by focusing on several different product areas. These include creator, business, internal coding, development and other versions. Meta A.I.'s latest version, Llama 3, is "the most intelligent artificial assistant that you can freely use," according to Zuckerberg, which allows his firm to now focus on making the products as widely available as possible.
On the financial front, Meta's mid point revenue guidance for the current quarter missed the analyst mark by $500 million, while growth in expenses stood out as a sore thumb after two consecutive quarters of annual drops.
Meta's total expenses, which drive its marketing, operational, product and growth expenses, stood at $20.3 billion and $23.7 billion during Q3 and Q4 2023 as they marked up to 8% in annual drops. On the flip side, Q1 2024 saw costs rise by 5.7%. Out of the $22.6 billion in expenses for Q1, Meta's expenses for its family of apps were $18.4 billion, accounting for more than 80% of all costs explained CFO Susan Li.
Zuckerberg Focuses On Smart Glasses Partnership With Ray-Ban, A.I. Assistants During Meta's First Quarter of 2024 Earnings Call
As Zuckerberg's opening remarks ended and Meta's finance chief took over, the stock had nearly dipped below $400, close to losing all of the gains that it had made after Meta's Q4 2023 earnings report.
In his remarks, he admitted that A.I. growth would be capital intensive and positioned Meta's consumer gadgets to benefit from A.I. as well. Some ideas that Meta has on this front include a "meaningful market for fashionable A.I. glasses without a display." Zuckerberg believes that "glasses are the ideal device for an A.I. assistant because you can let them see what you see and hear what you hear," providing a user "full context" around what a user is experiencing.
Meta's shares had settled at $416 after some wild swings in initial aftermarket trading. The stock had closed at $394 on the day Meta had reported its fourth quarter earnings, with the latest drop coming after earlier shocks saw Super Micro and NVIDIA's share lose 24% and 10% after A.I. related jitters spooked investors. If Meta's 16.5% share price drop in the aftermarket holds through tomorrow, it could make it the third company in history to experience a $200 billion dollar market value hit according to Dow Jones Market Data statistics shared by MarketWatch.
Meta's Results Lead To 3% and 2% Drops In Google Parent Alphabet & Microsoft's Shares During Aftermarket Trading
Meta's administrative expenses drove its first quarter costs by marking a 20% annual growth. Out of the remaining line items, only marketing costs marked a 16% drop, while research and development and direct product costs jumped by 6% and 9%, respectively. R&D costs include Zuckerberg's plans to develop custom A.I. silicon while direct product costs also reflect hardware and other costs for personal computing gadgets such as headsets. According to Li, the administrative expenses were "driven by legal expenses we recognized in accruals in Q1 related to ongoing legal matters."
She shared that Reels is proving to be lucrative for its social media platform, with users spending 60% of the time on the platform watching videos. She added that the unified video experience in the U.S. and Canada introduced earlier this month is driven by Meta's "next generation ranking architecture" that will deliver "more relevant video recommendation over time" as Meta blends A.I. into the product portfolio.
The latest results set up Microsoft and Alphabet, the remaining software A.I. players for an interesting earnings season. Microsoft's shares are down nearly 2%, while Alphabet has bled 3% in aftermarket trading. Alphabet and Microsoft are both due to report their earnings tomorrow, and Meta plans to keep up with its peers by investing significantly in its infrastructure over the coming years.
About the author: Ramish is a seasoned technology writer and editor with more than a decade of experience. He specializes in semiconductor fabrication and market analysis. With a background in finance and supply chain management - via his bachelors in Finance and a micromasters in supply chain management from MIT - Ramish combines financial rigor with deep industry insight to deliver accurate and authoritative coverage.
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