Meta’s Financial Report: Balancing Growth and Losses in Pursuit of the Metaverse

Mark Zuckerberg first talked about artificial intelligence while calling Meta’s earnings. Then he talked about the metaverse, praising his company’s headsets, glasses, and operating system. He mostly talked about how Meta is spending a lot of money.

Investors didn’t like what they heard. Meta‘s shares dropped by as much as 19% in after-hours trading on Wednesday, making the company lose more than $200 billion in market value. This happened even though Meta reported better-than-expected profit and revenue for the first quarter.

“I want to point out that we’ve seen a lot of ups and downs in our stock during this phase of our product playbook where we’re spending money to grow a new product but aren’t making money from it yet,” Zuckerberg said. He mentioned past efforts like Reels, Stories, and moving to mobile.

Almost all of Meta’s money comes from digital ads. But when Zuckerberg talked about ads, he was thinking about the future and how the company could make money from its investments.

Meta Labs
Meta’s Reality Labs: $440 million in sales, $3.85 billion in losses, and $45 billion in cumulative losses since 2020. (Credits: Meta)

When discussing Meta’s work on building better AI, he said, “We can make a lot of money by scaling business messaging, showing ads, or offering paid content through AI interactions.”

He also talked about Meta Llama 3, the company’s new big language model, and Meta AI, their version of OpenAI’s ChatGPT.

Zuckerberg then talked about opportunities to grow in the mixed-reality headset market, like making headsets for work or exercise. Meta made its Quest operating system available to others on Monday, which Zuckerberg said will help mixed reality technology grow faster.

He also mentioned Meta’s AR glasses, which he said are perfect for AI assistants because they can see and hear what you do.

Meanwhile, Meta’s Reality Labs unit, which works on hardware and software for the growing metaverse, is still losing money. In the first quarter, Reality Labs made $440 million in sales but lost a whopping $3.85 billion. Since the end of 2020, the division has lost over $45 billion.

Meta’s stock price almost tripled last year and, by Wednesday, had gone up by 40% in 2024. It hit a record high of $527.34 in early April.

Meta’s stock: Almost tripled in 2023, up 40% in 2024, hit record $527.34. (Credits: Google Finance

After a tough 2022, during which Meta’s value dropped by about two-thirds, Zuckerberg seems to have won back the trust of Wall Street.

The reason for the rebound has been a plan to cut costs that Zuckerberg put into action early last year when he said 2023 would focus on being more efficient. The company cut jobs and stopped unnecessary projects to become stronger and more flexible.

Zuckerberg said on Wednesday that Meta will keep working efficiently but will also put more money into AI investments to grow the company.

For 2024, Meta expects to spend between $35 billion and $40 billion on capital expenses, up from a previous estimate of $30 billion to $37 billion. This is because they’re speeding up investments in infrastructure to support their AI plans.

Zuckerberg said it will take several years before Meta’s AI products start making a profit, but he’s confident they can do it.

Zuckerberg’s cost-cutting plan: Increased efficiency, slashed headcount, aimed for a stronger organization.

Meta’s finance chief, Susan Li, agreed, saying they need to develop advanced models and products before they can make significant money.

Even before the call started, investors were selling their shares because Meta gave a conservative revenue forecast for the second quarter, which overshadowed the good first-quarter results.

As the stock dropped, Zuckerberg told investors that if they stick around, they might see big rewards.

“Building a leading AI will take more time and effort than anything else we’ve done before, but it’s a journey worth taking,” Zuckerberg said. “Investing in our apps has been a good long-term move, and this looks promising too.”

Michael Manua
Michael Manua
Michael, a seasoned market news expert with 29 years of experience, offers unparalleled insights into financial markets. At 61, he has a track record of providing accurate, impactful analyses, making him a trusted voice in financial journalism.
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