Meta Stock Drops: Q1 Beat, AI Costs & Guidance Miss

Meta Stock Drops: Q1 Beat, AI Costs & Guidance Miss

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Meta stock dropped after the first quarter reports of Facebook’s parent company fell short of very high expectations on Wednesday. Despite surpassing analysts predictions on sales and profit levels, Meta Platforms (META) executives offered a rather pessimistic outlook on revenues for the next three months.

To become a leader in generative AI, Meta is increasing its costs in the meantime. The Menlo Park, California-based firm raised its estimate for overall spending, citing the need for infrastructure investments to support its “AI road map,” according to a press statement from the company. The recent after-hours loss of almost 16% in the stock market was caused by all of those causes together.

Even if Meta’s first-quarter performance exceeded forecasts, the negative response is still evident. The company said in a press statement that its sales for the quarter ending in March came to $36.46 billion, or $4.71 per share. According to FactSet, analysts projected Meta to earn $4.32 per share on average based on $36.14 billion in revenue. While earnings rose 114% annually, sales increased by 27%.

Meta Guidance for Q2 2024

Meta stock’s poor reaction may have been caused by its current quarter predictions. At the middle of its range, Meta projected revenues of $37.75 billion, or between $36.5 billion and $39 billion. According to FactSet, experts had projected $38.25 billion in revenue for the June-ending quarter, but that amount fell short of that amount.

For Meta, the middle of its range would indicate a revenue rise of about 18% year over year for the second quarter, whereas the sales growth for the company’s prior three quarters was 27%, 24.7%, and 23.2%. However, experts predicted that Meta’s growth rate would decrease this year due to more difficult comparisons between the company’s previous year and this one.

However, some investors could have been taken aback by the mounting expenses.

 

From a previous range of $30 billion to $37 billion, Meta now anticipates capital expenditures of between $35 billion and $40 billion this year. Previously stated to be between $94 billion and $99 billion, Meta now projects total costs for the year to be between $96 billion and $99 billion.

The Jefferies analyst Brent Thill stated in a client letter on Wednesday that “lighter than expected Q2 revenue guidance and increases in the total expense and capex guides could weigh on the stock.”

Meta Stock Drops Q1 Beat, AI Costs & Guidance Miss
Meta Stock Drops Q1 Beat, AI Costs & Guidance Miss

Chief Executive Mark Zuckerberg noted that the business announced upgrades to its Llama big language model and Meta.ai chatbot last week during a call with analysts on Wednesday.

“I view the results our teams have achieved here as another key milestone in showing that we have the talent, data and ability to scale infrastructure to build the world’s leading AI models and services,” Zuckerberg stated. “And this leads me to believe that we should invest significantly more over the coming years to build even more advanced models and the largest scale AI services in the world.”

Meta Stock: Technical Ratings

In Wednesday’s trade, Meta dropped 0.5 percent to settle at 493.50 ahead of earnings. Shares had increased by less than 40% so far this year and 138% over the previous 12 months before the after-hours decline. Out of the “Magnificent Seven” stocks that drove the 2023 stock market rise, Meta stock trailed only Nvidia (NVDA) heading into its earnings for the best performance in 2024.

IBD Stock Checkup gave Meta stock a flawless IBD Composite Rating of 99 going into the report. Five different proprietary ratings are combined into one rating by the score. A Composite Rating of 90 or higher is indicative of the top growth stocks.

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Additionally, Meta scored 96 out of 99 on the IBD Relative Strength Scale.
Tech Leaders, IBD 50, Big Cap 20, and the exclusive IBD Leaderboard list are among the IBD stock lists that include Meta stock.

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