Facebook owner Metaplatforms on Wednesday beat analysts' expectations for third-quarter revenue and profit, but warned that infrastructure spending related to artificial intelligence would “accelerate significantly.”
The results sent mixed signals to investors about whether digital ad sales from Meta's core social media business will continue to cover the costs of building AI at scale.
Shares of the Menlo Park, California-based company fell 2.9% in after-hours trading.
“Meta will need to prove it can continue to cover its AI costs as AI costs rise next year, and a weakness in its core advertising business will discourage investors from continuing to wait for returns from Meta’s larger AI bet. It can be worrying,” said an e-marketer representative. Analyst Jasmine Enberg.
Like big tech companies, Meta has capitalized on the generative AI boom by investing heavily in data centers. However, unlike cloud service providers, they do not expect to see an immediate return on those investments, which brings them closer scrutiny from investors regarding their spending.
The world's largest social media company, led by CEO Mark Zuckerberg, kept costs down in the third quarter, with total expenses of $23.2 billion and capital expenditures of $9.2 billion. He also expects the spending situation to improve slightly this year, reducing his total spending forecast to $96 billion to $98 billion.
However, the press release warned that “infrastructure spending growth will accelerate significantly next year due to expected increases in depreciation and operating costs for expanded infrastructure.”
Investors have been wary of Meta's spending in recent months. The company's stock price plunged in April after it disclosed higher-than-expected expense forecasts, causing a $200 billion drop in stock market value.
This marks the end of a strong quarter for Meta. The company bounced back from the 2022 stock market crash by slimming its workforce, buoyed by investor excitement about AI, and issuing its first-ever dividend earlier this year.
Meta's earnings came on the heels of strong results from digital advertising pioneers Alphabet Inc. and Snap Inc. Both companies beat third-quarter revenue estimates on Tuesday, in part due to increased sales of AI-assisted advertising.
Meta reported third-quarter earnings of $6.03 per share, compared to expectations of $5.25, according to data compiled by LSEG. Revenue for the third quarter was $40.59 billion, compared to analysts' expectations of $40.29 billion.
The company also expects fourth-quarter revenue to be between $45 billion and $48 billion, compared to analyst expectations of $46.31 billion, according to LSEG data.
Advertising makes up the bulk of Meta's revenue, analysts said, meaning increased marketing spending during the holiday season could give the company a big boost to its bottom line.
Meta's Family Daily Active Users (DAP), a metric we use to track unique users who open one of our apps per day, grew 5% in Q3 to 3.29 billion. I did. DAP increased by 7% to 3.27 billion in June quarter last quarter.
As user growth slows, Enberg said, Meta is well-positioned to squeeze more revenue out of users because it has AI tools that can show users more content tailored to their interests.
The company's Reality Labs division, which makes Quest virtual reality headsets, smart glasses made with EssilorLuxottica's Ray-Bans, and upcoming augmented reality glasses, posted a $4.4 billion loss in the third quarter and an That was smaller than List's forecast for a $4.7 billion loss.
