Meta (META) Q1 2024 Earnings

Meta shares tumbled 16% in extended trading Wednesday after the company issued a soft forecast that eclipsed better-than-expected first quarter results.

Here are the basic numbers:

• Earnings per share: $4.71 per share versus $4.32 per share expected by LSEG
• Income: $36.46 billion vs. $36.16 billion expected by LSEG

Revenue rose 27% from $28.65 billion in the year-ago period, the fastest pace of expansion for any quarter since 2021. Net income more than doubled to $12.37 billion, or $4 .71 per share, up from $5.71 billion, or $2.20 per share, a year ago.

One reason for the jump in net income is that while revenue growth accelerated, sales and marketing expenses fell 16% from the year-earlier period.

Meta said it expects second-quarter sales of $36.5 billion to $39 billion. The midpoint of the range, $37.75 billion, would represent 18% year-over-year growth and is below analysts’ average estimate for $38.3 billion.

The stock selloff accelerated early in the earnings call after CEO Mark Zuckerberg weighed in on his discussion of investments, namely in areas like glasses and mixed reality where the company isn’t currently making money. And he said investment in artificial intelligence is increasing.

“On the other hand, once our new AI services reach scale, we have a good track record of monetizing them effectively,” Zuckerberg said.

Facebook’s parent company no longer reports daily active users and monthly active users. Now he gives a figure for what he calls “family daily active people”. That number was 3.24 billion for March 2024, a 7% increase from a year earlier.

Meta has raised investor expectations due to its improved financial performance in recent quarters, leaving little room for error. Shares were up about 40% this year as of Wednesday’s close, after nearly tripling last year. In February 2023, Zuckerberg told investors that it would be the “year of performance,” sparking the rally.

At the time, Zuckerberg said the company would be better at eliminating unnecessary projects and fighting bloat, which would help Meta become a “stronger and more agile organization.” The company cut about 21,000 jobs in the first half of 2023, and Zuckerberg said in February of this year that the hiring would be “relatively minimal compared to what we would have done in the past.”

The number of employees fell 10% in the first quarter from a year earlier to 69,329.

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.

Average revenue per user in the quarter was $11.20, the company said.

Meta is regaining digital ad market share after a dismal 2022. At the time, it was reeling from of Apple iOS privacy update and macroeconomic concerns that have caused many brands to curb spending.

Zuckerberg spearheaded an initiative to rebuild the ad business with a focus on AI. During the company’s most recent earnings call in February, CFO Susan Li said Meta is investing in AI models that can accurately predict relevant ads for users, as well as tools that automate the ad creation process.

Advertising revenue, which makes up the bulk of Meta’s business, jumped 27% in the first quarter to $35.64 billion.

Meta is benefiting from a stabilizing economy and a surge in spending from Chinese discount retailers such as Temu and Shein, which are pouring money into Facebook and Instagram in an effort to reach a wider range of users. Some analysts warned that slower spending by China-based advertisers could be a source of concern in the first quarter and as the year progresses.

Li said on Wednesday’s earnings call that the company did not quantify China’s contribution in the quarter, but she said advertising revenue in the Asia-Pacific region rose 41 percent from a year earlier, making it the most the fast-growing region, and have been augmented by online commerce and gaming.

The company’s Reality Labs division, which houses its hardware and software for developing the nascent metaverse, continues to lose money. Reality Labs reported $440 million in sales for the quarter and $3.85 billion in losses, bringing its total losses for the year to the end of 2020 to more than $45 billion. Analysts had expected the division to post an operating loss of $4.31 billion for the quarter.