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Mark Zuckerberg has reignited investor fears that he can't control spending at Meta after promising to increase spending and make the social media group “the world's leading AI company.”
Meta's revenue release showed revenue across platforms including Facebook, Instagram and WhatsApp rose 27 per cent to $36.5bn in the first three months of 2024, beating analysts' expectations of $36.2bn.
But Meta raised the high end of its full-year capital expenditure guidance from $37bn to $40bn to “continue to accelerate our infrastructure investments to support our artificial intelligence (AI) roadmap”. Total capital expenditure last year was $28.1bn.
It said capital spending was expected to continue rising next year and raised the lower end of its 2024 full-year spending guidance from $94bn to $96bn. It forecast revenue in the range of $36.5bn-$39bn for the current quarter, against consensus estimates of $38.3bn.
Last year, Meta's chief executive tried to keep Wall Street happy amid tough macroeconomic conditions, job cuts, cost-cutting and branding 2023 as the “year of efficiency.”
However, Zuckerberg is under increasing pressure to keep pace in the fast-moving AI race with Silicon Valley groups such as OpenAI, Microsoft and Alphabet's Google, which has forced him to increase investment in the expensive technology and infrastructure needed to support his projects. Microsoft and Alphabet are expected to provide updates on their own AI initiatives in earnings reports on Thursday.
Zuckerberg said on a call with analysts that he believes Meta “will need to invest significantly in the coming years to build even more advanced models and the world's largest scale AI services.” “This spending will have to grow meaningfully before we can get more revenue from some of these new products,” he added.
The subsequent plunge in Meta's stock wiped billions of dollars off its market value. It's a sharp reversal for a stock that has risen more than 40 percent this year, declaring its first dividend since a bumper fourth-quarter earnings announcement in February and marking a strong recovery from recent publicity. Decline.
As part of efforts to develop and integrate AI tools into its products, Meta is focusing on introducing chatbots to increase engagement on its social media apps, increase features for advertisers and improve the targeting of its feeds. This month it released a new version of the AI model behind its chatbots, Llama 3, which it said has more advanced capabilities, including reasoning capabilities. Meta also unveiled a new generation of its AI personalized chips.
In his opening remarks to investors during Wednesday's earnings call, as shares continued to slide, Zuckerberg sought to assuage investor fears over the costs by pointing to the company's “strong track record” of monetization.
To bring in revenue, Meta can measure commercial messages, introduce ads into user interactions with AI chatbots and charge teams to use its large AI models, he said.
Zuckerberg said he would continue to invest in his long-term ambitions to create a meta, avatar-filled metaverse and focus on developing what he called “wearable AI” — smart glasses with an embedded AI assistant.
Reality Labs, Meta's virtual and augmented reality division, posted a loss of $3.85bn in the first quarter, as it did a year earlier, with the company continuing to expect operating losses to “increase meaningfully” year-on-year.
“It's reminiscent of Mark Zuckerberg's 'heads-up' metaverse he once said. It didn't go well, but it's different than Meta's metaverse gambit because AI now has real and practical use cases,” said Forrester research director Mike Proulx.
“The question remains whether Meta can compete in the AI race while maintaining a strong financial position. To do this, expect to see more 'Metaverse' resources diverted from Reality Labs to Meta's AI initiatives,” he added.
