(Bloomberg) — Meta Platforms Inc. dashes investors’ hopes for long-term advertising recovery, citing an uncertain economic environment. However, the company remains committed to investing heavily in emerging technologies like virtual reality and artificial intelligence. Shares plunge in after-hours trading.
Most Read from Bloomberg
“We are highly susceptible to macroeconomic volatility,” states Chief Financial Officer Susan Li during an investor call. She adds, “The revenue outlook for 2024 is uncertain.”
This statement dampens the positive tone of an otherwise optimistic earnings report. Despite exceeding analysts’ expectations for third-quarter revenue and providing guidance in line with projections for the current quarter, Meta’s shares initially experienced a 5% increase but ultimately dropped by over 3% during extended trading. Executives express concerns about the macroeconomic environment.
In recent years, Meta has focused on convincing investors that it can strike the right balance between investing extensively in future technologies such as AI and VR and maintaining growth in its core digital advertising business. After experiencing its first revenue decline last year, Meta faced the worst performance in its stock history, illustrating investors’ skepticism toward the company’s strategy. The company took measures to reduce costs, implemented layoffs, and made efforts to reverse the declining revenue.
Initially, Meta’s Wednesday results suggest a recovery in its ad business. The company reports third-quarter sales of $34.2 billion, surpassing the average analyst estimate of $33.5 billion.
Nevertheless, Meta warns about potential macroeconomic uncertainties that could impact revenue. The company also announces an ambitious spending plan for 2024, focusing on AI infrastructure and talent. Additionally, Meta remains committed to investing in its money-losing virtual reality division, known as Reality Labs.
“We recognize that we have very ambitious investments on the horizon, including our long-term work in Reality Labs and new investments in generative AI,” remarks Li during the call. Generative AI refers to technology that responds to user queries with text or images. She adds, “We understand the importance of earning the ability to invest in these initiatives by consistently delivering growth in consolidated operating income.”
Earlier this year, Meta undertook significant workforce reductions and streamlined projects to focus on enhancing advertising algorithms using artificial intelligence. The company’s emphasis on the metaverse, the virtual reality world that CEO Mark Zuckerberg renamed the company after, has diminished, especially in front of the skeptical investor community.
Meta has been promoting short-form video content called Reels on Instagram and Facebook. While this has increased user engagement, advertisers are still adjusting to the new format.
In its Wednesday announcement, the tech giant lowers its spending expectations for 2023 to a range of $87 billion to $89 billion, indicating that certain planned expenses, such as new hires and infrastructure billing, will be delayed until 2024.
Cost reduction efforts have contributed to an expansion in operating margins, reaching 40% compared to the 20% recorded in the same period last year. Meta reports earnings per share of $4.39 for the third quarter, a significant improvement from $1.64 in the previous year.
For 2024, Meta forecasts expenses to increase between $94 billion and $99 billion. The majority of these funds will be allocated to expanding technology infrastructure for AI and VR tools, as well as hiring additional employees for high-cost technical roles in product development.
Meta’s approach to the AI race differs from other major tech companies. Instead of monetizing AI research, Meta shares its research and large language models, which serve as the foundation for AI chatbots, with developers for free. Meta believes this open strategy will facilitate rapid technology improvement.
At its developer conference in September, Meta unveiled its first generative AI features for consumers, including a range of chatbots and image-editing tools for platforms like Instagram and Facebook.
During the event, Zuckerberg expanded his commitment beyond the metaverse to include augmented reality. This technology overlays computer-generated images on the real world. Additionally, the company introduced an updated version of its smart glasses developed in partnership with Ray-Ban and its new VR headset, the Quest 3.
In its report, Meta discloses that Reality Labs, the division responsible for smart glasses and headsets, incurred an operating loss of $3.7 billion on $210 million in revenue. Analysts had predicted an operating loss of $3.94 billion on $313.4 million in revenue, on average.
Meta’s overall monthly user count increases by 7% to 3.14 billion in the last month of the quarter, exceeding analysts’ estimate of 3.05 billion.
(Updates with CFO comments in the seventh paragraph)
Most Read from Bloomberg Businessweek
©2023 Bloomberg L.P.
