Meta Stock Dips After Earnings Beat Amid AI Spending Concerns and User Growth Slowdown
Meta Platforms, Inc. (META) saw a slight decline in its stock price following its latest earnings report, despite a revenue beat and strong gains in its advertising business. The company, which owns Facebook, Instagram, and WhatsApp, reported third-quarter revenue of $40.59 billion, ahead of Wall Street’s expectations of $40.25 billion, and earnings per share (EPS) of $6.06, surpassing analyst predictions of $5.25. However, Meta’s daily active user growth of 3.29 billion fell short of projections of 3.31 billion, raising some concerns among investors about its ability to maintain a rapid pace of user expansion.
A key factor impacting Meta’s stock was CEO Mark Zuckerberg’s announcement that AI investments are set to rise further in 2025, with the company planning significant expansions in its infrastructure. This includes a continued investment in building and operating data centers equipped with NVIDIA GPUs to support Meta’s growing suite of AI-powered applications and its Llama family of generative AI models. While the stock has surged 66% year-to-date, the anticipated jump in expenses next year stirred cautious reactions among investors.
The company reported $39.9 billion in advertising revenue, an 18.7% increase year-over-year, benefiting from improved ad prices, up 11% from the previous year. Despite some pressure from lower digital ad spending in the Asia-Pacific region, Meta’s advertising revenue overall saw substantial growth, with strong performance across Reels and Stories on Instagram and Facebook. Analysts noted this strength could offset slowing user growth if Meta continues to optimize its ad platform using AI-driven tools, which personalize content and boost engagement.
The Reality Labs division, which develops Meta’s VR and AR products, posted a $4.4 billion loss for the quarter, which was in line with analyst expectations. Sales for this segment grew 29% to $270 million, below the projected $310 million. Reality Labs’ continued losses emphasize Meta’s long-term commitment to metaverse ambitions, despite skepticism regarding the profitability timeline for this division. Meta is promoting new products, including its Ray-Ban Meta smart glasses and Quest 3S VR headset, aimed at enhancing its AR/VR ecosystem.
Meta’s forecast for Q4 revenue ranges between $45 billion and $48 billion, surpassing analyst expectations. However, ongoing high spending on AI infrastructure, combined with a forecasted $96-$98 billion in total expenses for fiscal year 2024, remains a point of tension for investors. Zuckerberg defended the spending, citing AI as a “massive opportunity” that could yield transformative benefits across Meta’s platforms, from ad targeting to user experiences.
Despite the earnings beat and bullish AI outlook, Meta’s stock dipped over 3% after the report, suggesting that investors remain wary of rising costs and the potential need for more ad revenue as growth slows.