Meta (META) Shares Rise After Q3 EPS, Revenue Beat Estimates

Meta Platforms Inc. Investors’ hopes of a long-term recovery in advertising were dashed by Meta Platforms Inc., which said that it was at whimsy due to an uncertain economic climate. The company also plans to invest heavily in newer businesses, including virtual reality and AI. In extended trading, shares fell.

Susan Li, Chief Financial Officer of the company, said in a conference call with investors that “we are subject to volatility within the macro-environment”. The revenue outlook for 2024 is “uncertain”.

The comments dampened an otherwise positive earnings report. The third-quarter revenue exceeded analysts’ expectations while the guidance for the current quarterly was in line. Shares initially rose more than 5 percent, but fell more than 3 percent in extended trading as executives expressed concern about the macro-environment.

Meta has worked to convince investors in recent years that it is appropriately balancing its huge expenditures on future technologies like AI and VR while ensuring that the core digital advertising business continues to grow. Investors skepticism about the company’s strategies grew after the company posted its first revenue decrease last year. The company has cut costs, laid off workers and worked to reverse its declining revenue.

Meta’s results on Wednesday appeared to indicate a turnaround in the ad-business. The company reported that third-quarter sales totaled $34.2 billion. This compares to an average analyst estimate $33.5 billion.

Meta’s warning about macro-uncertainties that could affect revenue was accompanied by a large spending plan for 2024. This included AI infrastructure and talent. The company continues to invest in its money-losing virtual world division, Reality Labs.

Li, speaking on the call, said: “We are aware that we have ambitious investments in the future, both with the work we do at Reality Labs and with the newer, equally as ambitious investments that we added to the gen AI roadmap recently.” Li was referring to the technology of generative AI which answers questions from users with images or text. “We recognize that in order to be able to invest in these things, we must deliver consolidated operating income over time.”

The company has been focusing on artificial intelligence and improving its algorithms and advertising. The company has spoken less about the metaverse – the virtual world for which Chief Executive Mark Zuckerberg renamed it – especially in front of sceptical investors.

Meta is pushing Reels, a short-form video format, on Instagram and Facebook. Meta’s advertisers have been slow to adapt to the new format, despite the fact that it has helped increase the time users spend scrolling through its app.

The tech giant lowered on Wednesday its expectations for spending in 2023 to between $87 and $89 billion. It said that some of the planned expenditures such as new headcount or infrastructure billing will take place in 2024.

Cost-cutting has increased operating margins from 20% to 40%, up from 20% during the same period in 2013. Meta reported a third-quarter profit per share of $4.39 compared to $1.64 the year before.

Meta expects to spend between $94 and $99 billion in 2024. According to Meta’s statement, the majority of these dollars will be spent on its ongoing expansion of technology infrastructure for complex AI and VR tools and hiring more workers in “higher-cost roles” to create those products.

Meta’s AI strategy has been quite different from that of its Big Tech competitors. It’s releasing large language models or research, which is the technology behind AI chatbots, for developers to use. Meta believes that this open approach will accelerate the development of technology.

The company launched its first AI-generated features for consumers at its developer conference held in September. These included a variety of chatbots, image editing tools, and other services for platforms such as Instagram and Facebook.

Zuckerberg’s commitment to augmented reality (computer-generated images overlaid on real life) was also expanded at the event. In addition to the new VR headset Quest 3, the company also announced an updated version the smart glasses it developed in collaboration with the sunglass manufacturer Ray-Ban.

Meta reported in its report on Wednesday that Reality Labs, a division which makes smart glasses, headsets and other devices, had posted an operating loss $3.7 billion based on revenues of $210 million. Analysts expected an average operating loss of $3.94 on revenue of $313.4 millions.

Meta’s monthly users grew 7% in the final month of the third quarter to 3,14 billion, as compared to the analyst estimate of 3.05 billion.