Mark Zuckerberg, CEO of Meta, testifies before the Senate Judiciary Committee in the Dirksen Senate Office Building on January 31, 2024 in Washington, DC.

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Mark Zuckerberg started Metacalls earnings by talking about artificial intelligence. He then moved into the metaverse, promoting his company’s headsets, glasses, and operating system. He spent almost all of his opening remarks focusing on the many ways Meta loses money.

Investors weren’t into it. Meta shares tumbled as much as 19% in extended trading on Wednesday, wiping out more than $200 billion in market capitalization. The decline came despite Meta reporting better-than-expected first-quarter profit and revenue.

Zuckerberg seemed ready for the sale.

“I think it’s worth pointing out that in the past we’ve seen a lot of volatility in our stock during this phase of our product roadmap when we’re investing in scaling a new product but not yet monetizing it,” Zuckerberg said. He cited past efforts such as short video services Reels, Stories and the move to mobile.

Meta generates 98% of its revenue from digital advertising. But as much as Zuckerberg was talking about ads, he was looking to the future and ways the company could potentially turn its current investments into advertising dollars. In discussing Meta’s efforts to build “leading AI,” he said, “There are several ways to build a massive business here, including scaling business messaging, introducing ads or paid content into AI interactions.”

He spent some time talking about Meta Llama 3, the company’s latest major language model, and the recent implementation of Meta AI, the company’s answer to OpenAI’s ChatGPT.

Zuckerberg then turned to potential opportunities for expansion within the mixed reality headset market, such as work or fitness headsets. Meta open access to the operating system that powers its Quest headset on Monday, which Zuckerberg said will help the mixed reality ecosystem grow faster.

He also talked about Meta’s AR glasses, which he called “the perfect AI assistant device because you can let them see what you see and hear what you hear.”

The Ray-Ban Meta Headliner smart glasses.

Jake Piazza | CNBC

Meanwhile, the Meta Reality Labs unit that houses the company’s hardware and software for developing the nascent metaverse continues to bleed cash. Reality Labs reported first-quarter sales of $440 million and a $3.85 billion loss. The division’s cumulative losses since the end of 2020 exceeded $45 billion.

Zuckerberg bought himself some time.

Meta’s share price nearly tripled last year and as of Wednesday’s close was up 40% in 2024. It hit a record $527.34 in early April.

After a brutal 2022 that saw the company lose about two-thirds of its value, Zuckerberg appears to have regained Wall Street’s confidence.

The engine for the rally was the cost-cutting plan that Meta’s CEO introduced early last year, when he told investors that 2023 would be “the year of efficiency.” The company has cut headcount and eliminated unnecessary projects in an effort to become a “stronger and more agile organization.”

Zuckerberg said Wednesday that Meta will continue to operate effectively, but that redirecting existing resources to AI investments will “significantly increase our investment portfolio.”

Capital spending for 2024 is expected to be in the range of $35 billion to $40 billion, an increase from a previous forecast of $30 billion to $37 billion, “as we continue to accelerate our infrastructure investments to support our roadmap for artificial intelligence (AI),” Meta said.

Zuckerberg said he expects to see a “multi-year investment cycle” before Meta’s AI products turn into profitable services, but noted the company has a “strong track record” in that department.

Meta CFO Susan Li echoed Zuckerberg’s remarks, saying the company needs to develop advanced models and scale products before they generate significant revenue.

“While there is huge long-term potential, we’re just very early on the return curve,” Li said.

Even before the call began, investors were reducing their holdings. That’s because Meta issued a soft Q2 earnings forecast, eclipsing the Q1 beat.

As the stock’s slide intensified, Zuckerberg told investors that if they were willing to jump into the race, they could be rewarded.

“Historically, investing in building these new scale experiences in our apps has been a very good long-term investment for us and for the investors who have stayed with us, and the early signs are pretty positive here as well,” Zuckerberg said. “But building leading AI is also going to be a bigger undertaking than the other experiences we’ve added to our apps, and it’s likely to take several years.”

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