Why is Meta Stock Down Despite Strong Earnings?
Meta Platforms, formerly known as Facebook, faced a significant downturn in its stock price, plunging over 10% in limited afternoon trading and then further sliding over 12% and 15% in subsequent after-hours trading sessions. This steep decline comes despite the company’s impressive first-quarter earnings report, which showcased substantial growth in revenue, net income, and earnings per share.
In the first quarter of 2024, Meta reported robust financials, with $36.46 billion in sales, surpassing Wall Street estimates and marking a remarkable 27% increase compared to the same period last year. Earnings per share soared to $4.71, far exceeding analysts’ forecasts, and net income stood at $12.4 billion, reflecting a significant improvement year-over-year.
However, the optimism surrounding Meta’s earnings was overshadowed by the company’s cautious outlook for future growth. Despite the strong performance in the first quarter, Meta anticipates a slowdown in growth for the second quarter, with projected sales of $36.5 billion to $39 billion falling below average analyst estimates. Additionally, the company raised its full-year expense outlook, citing increased costs in its metaverse segment, which contributed to investor apprehension.
The metaverse, an area Meta has been heavily investing in, particularly through its Reality Labs division, continues to incur substantial losses. Despite efforts to innovate and expand its presence in this emerging space, Reality Labs reported significant losses, adding to concerns about Meta’s ability to monetize these investments effectively.
Moreover, Meta’s plans to invest heavily in artificial intelligence (AI) further fueled investor anxiety. While the company aims to leverage AI technology to enhance its advertising capabilities and drive revenue growth, the increased investment in AI, coupled with higher infrastructure and legal costs, raised questions about the company’s profitability in the near term.
Mark Zuckerberg, Meta’s CEO and founder, emphasized the company’s commitment to innovation and its AI roadmap during the earnings call. However, investors appeared wary of the short-term impact of these investments on Meta’s bottom line, leading to the sharp decline in the stock price.