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Meta Projects Higher Spending, Weaker Revenue Amid AI Push

In Technology
April 25, 2024

(Bloomberg) — Meta Platforms Inc. increased its spending estimates for the year and projected second quarter sales that were below Wall Street’s expectations, once again raising questions about whether its futuristic technological bets will eventually pay off for investors.

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The Facebook parent reported revenue of $36.5 billion in the first quarter, an increase of more than 27% over the same period a year ago. It was a small beat, as analysts were looking for revenue of $36.1 billion on average, according to estimates compiled by Bloomberg. Profit more than doubled to $12.4 billion or earnings per share of $4.71.

But the Menlo Park, California-based social networking company also projected second quarter sales of $36.5 billion to $39 billion. Analysts expected $38.2 billion. At the same time, Meta raised its expected costs for the year, and now believes capital expenditures will be $35 billion to $40 billion. Earlier this year, it estimated expenses related to things like servers, AI hardware and data centers would be $30 billion to $37 billion.

“We expect capital expenditures will continue to increase next year as we invest aggressively to support our ambitious AI research and product development efforts,” Chief Financial Officer Susan Li said in a statement.

The shares tumbled 11% in extended trading. The stock was up 39% so far this year at market close and has been trading near all-time highs for the past month, in part reflecting excitement around AI.

Meta has been spending aggressively to compete on AI against other tech peers like Microsoft Corp. and Alphabet Inc., which is driving some of the increase in costs. The company announced plans for a new $800 million data center in January, and is also developing its own chips for artificial intelligence services. Meta is also working on several new iterations of its large language model, known as Llama, for powering chatbots and other AI services.

In the previous quarter, Chief Executive Officer Mark Zuckerberg announced a $50 billion stock buyback in addition to the company’s first ever quarterly dividend, an effort to placate investors frustrated by the company’s aggressive spending on technologies that have yet to pay off. Zuckerberg has spent years plowing money into efforts to build the so-called Metaverse, a virtual world where he hopes people will one day play and work.

Reality Labs, the Meta division focused on its futuristic bets, reported a loss of $3.85 billion for the first quarter, roughly the same as a year ago. That division, which also oversees VR headsets and Meta’s Ray-Ban smart glasses, reported an annual loss of more than $16 billion in 2023.

The company reiterated its broader 2024 spending plans, saying it will shell out $96 billion to $99 billion for the calendar year, up slightly from a low-end target of $94 billion to $99 billion. It previously said that much of that would go toward infrastructure costs in addition to long-term bets on augmented and virtual reality.

Meta’s mixed report comes on the same day that President Joe Biden signed a bill into law that would force TikTok’s parent company, ByteDance Ltd., to sell the popular video service or face a ban in the US. The potential elimination of a major competitor could give a boost to Meta’s advertising business since its short-video offering Reels is a clone of TikTok.

(Updates with CFO comments in fourth paragraph. A previous version of this story corrected the full name of Mark Zuckerberg.)

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