(Bloomberg) — Meta Platforms Inc. dashed investors’ hopes for a long-term advertising recovery, saying it was at the whim of an uncertain economic environment, even as the company plans to spend heavily on newer businesses including virtual reality and artificial intelligence. Shares fell in extended trading.
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“We are very subject to volatility in the macro landscape,” Chief Financial Officer Susan Li said on a call with investors. “The revenue outlook is uncertain” for 2024.
The comments put a damper on an otherwise upbeat earnings report. Third-quarter revenue beat analysts’ expectations, while guidance for the current quarter was in line with projections. The shares initially climbed more than 5%, but slid more than 3% in extended trading after executives expressed concerns about the macro environment.
In recent years, Meta has been working to convince investors that it’s appropriately balancing huge spending on future technology like AI and VR with ensuring that its core digital advertising business is still growing. After posting its first revenue decline last year, investors drove the stock to its worst year ever, showing their skepticism of the company’s strategy. The company reigned in costs and laid off employees, and has worked to turn around its declining revenue.
Initially, Meta’s Wednesday results appeared to show a recovery from struggles in its ad business. Third-quarter sales were $34.2 billion, the company said, compared with the average analyst estimate of $33.5 billion.
But Meta’s warning on potential macro uncertainties that could impact revenue came alongside an expensive spending plan for 2024, mostly on AI infrastructure and talent. The company is also continuing its investment in the money-losing virtual reality division, known as Reality Labs.
“We recognize that we have very ambitious investments on the horizon, including over a long time horizon with our Reality Labs work and newer, equally ambitious investments we have added in the gen-AI roadmap more recently,” Li said on the call, referring to generative AI, the technology that answers users’ questions with text or images. “And we recognize that we have to earn the ability to invest in all of those things by delivering consolidated operating income growth over time.”
Earlier this year, the company cut thousands of employees and a wide range of projects, while sharpening its focus on improving its advertising and algorithms with artificial intelligence. Talk of the metaverse, the virtual reality world that Chief Executive Officer Mark Zuckerberg renamed the company for, has been less frequent, particularly in front of the skeptical investor community.
On Instagram and Facebook, Meta has been pushing short-form video, which it calls Reels. While that’s helped boost the time spent by users scrolling through the app, Meta’s advertisers are taking a while to get used to the new format.
The tech giant on Wednesday lowered its spending expectations for 2023, to between $87 billion and $89 billion, saying that some of its planned expenditures, such as on new headcount and infrastructure billing, will happen in 2024 instead.
Cost cutting has helped widen operating margins to 40%, compared with 20% in the same period last year. Meta posted third-quarter earnings per share of $4.39, compared with $1.64 in the prior year.
For 2024, Meta sees its expenses increasing to between $94 billion and $99 billion. Most of those dollars will go toward its continued expansion of technology infrastructure to run complex AI and VR tools, and hiring more workers for “higher-cost technical roles” to build those products, according to its statement.
Meta’s approach to the AI race has been different than its Big Tech peers. For the most part, it’s unveiling research or large language models — the technology that underpins AI chatbots — for free to be used by developers. Meta thinks this open strategy will help improve the technology faster.
At its developer conference in September, the company introduced its first generative AI features for consumers, including a number of chatbots and image-editing tools for platforms like Instagram and Facebook.
At the event, Zuckerberg also broadened his usual commitment to the metaverse, a fully virtual world, to include augmented reality, which overlays computer generated images on the real world. The company announced an updated version of the smart glasses that it developed with sunglass maker Ray-Ban, in addition to its new VR headset, the Quest 3.
In Wednesday’s report, Meta said Reality Labs, the division that makes smart glasses and headsets, posted an operating loss of $3.7 billion on $210 million in revenue. Analysts had expected an operating loss of $3.94 billion on $313.4 million in revenue, on average.
Meta’s overall monthly user numbers rose 7% to 3.14 billion in the last month of the quarter, compared with the 3.05 billion estimate from analysts.
(Updates with CFO comments in seventh paragraph)
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Barbara Terrio is a seasoned business journalist, delving into the world of finance, startups, and entrepreneurship. With a knack for demystifying complex economic trends, she helps readers navigate the business landscape. Outside of her reporting, Barbara is an advocate for financial literacy and enjoys mentoring aspiring entrepreneurs.
