Mark Zuckerberg has triggered concerns amongst investors regarding his cost management at Meta, following his declaration to increase expenditure to make the social media conglomerate the world’s foremost artificial intelligence (AI) enterprise. This resulted in Meta shares plummeting by more than 12% in pre-market trading on Thursday.
Meta, which encompasses platforms such as Facebook, Instagram, and WhatsApp, experienced a 27% revenue increase to $36.5 billion (£27.6 billion) during the initial quarter of 2024. These earnings marginally surpassed the anticipated $36.2 billion forecast by market analysts.
However, Meta also elevated the upper limit of its annual capital expenditure predictions. To maintain the progression of infrastructure investments that support the company’s AI objectives, the predicted expenditure grew from $37 billion to $40 billion. The capital expenditure for the previous year stood at $28.1 billion.
Additionally, the company indicated an expected rise in capital expenditure for the following year and increased the lower end of its 2024 annual expense projections from $94 billion to $96 billion. The forecasted revenue for the current quarter is between $36.5 billion and $39 billion, against the predicted consensus of $38.3 billion.
In the preceding year, Mark Zuckerberg strived to satisfy Wall Street amidst challenging macroeconomic circumstances, by instigating job cuts, reducing expenses, and designating 2023 as a “year of efficiency”.
Facing increased pressure to keep up with the rapid advancements in AI led by Silicon Valley players including OpenAI, Microsoft, and Alphabet’s Google, Zuckerberg has consequently had to invest heavily in expensive tech and infrastructure. Both Microsoft and Alphabet are set to report on their own AI endeavours in their forthcoming earnings updates on Thursday.
Zuckerberg voiced to analysts his belief that Meta “needs to increase investments considerably in the forthcoming years to build more sophisticated models and the most extensive scale AI services globally,” asserting that these expenditures are set to spike “significantly prior to generating substantial revenue from a number of these new products.”
Meta’s shares took a dramatic nosedive after trading hours, leading to a significant loss in its market worth. This is a steep contrast to its performance earlier in the year, in which it enjoyed a more than 40% increase in stock value following its highest ever fourth-quarter profits declaration in February. This peak in performance came in conjunction with the news of its first dividend and indications of a robust bounce back from a recent decline in advertising.
Part of Meta’s strategy involves the implementation of AI tools into its services. There’s been a particular emphasis on bringing chatbots into its social media applications as a means to increase user involvement, alongside the development of new features for advertisers and refining the specificity of its feeds.
At some point in the current month, Meta introduced an updated version of the AI model that powers its chatbots: Llama 3. The company claims this iteration has markedly better capabilities, such as the capacity for reasoning. In conjunction with this, Meta has revealed a fresh batch of custom AI chips.
On Wednesday’s investor call, during which the share prices kept dropping, Zuckerberg tried to alleviate investors’ apprehensions about expenditure by highlighting the firm’s “impressive monetisation history”.
In order to generate income, Zuckerberg suggested that Meta might expand business messaging, incorporate advertising into user’s interaction with AI chatbots, and implement a charge for groups wanting to use its larger AI models.
Furthermore, he mentioned that Meta plans to continue putting money towards his future ambitions of establishing a metaverse filled with avatars, giving particular attention to the creation of what he calls “wearable AI”— spectacles equipped with an embedded AI assistant.
Meta’s virtual and augmented reality division, Reality Labs, reported a loss of $3.85 billion in Q1, similar to the previous year’s figure, with the firm disclosing it anticipates operational losses to “increase substantially” on an annual basis.
Mike Proulx, research director at Forrester, likened Mark Zuckerberg’s ‘warning sign’ to previous statements made about the metaverse. Despite the previous poor performance in metaverse, this scenario is different given that AI has immediate, concrete use cases. He further questioned Meta’s capability to compete in the AI domain while preserving a robust financial stance. It’s anticipated, he added, that more ‘metaverse’ resources will be redirected from Reality Labs to Meta’s AI projects.
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