Meta Shares Plunge 10% After Disappointing Second Quarter Outlook

Meta (META) reported its first-quarter results on Wednesday, beating analysts’ expectations for revenue and profit, but a disappointing second-quarter forecast sent the social media giant’s shares down more than 10%.

Meta said second-quarter revenue will be between $36.5 billion and $39 billion, below median estimates of $38.24 billion.

In addition to the optimistic Q2 forecast, Meta CFO Susan Li raised the company’s total cost estimate to $96 billion to $99 billion from $94 billion to $99 billion due to higher infrastructure and legal costs. Li said Meta continues to expect its Reality Labs division to post higher year-on-year operating losses as the company expands its various AR and VR efforts.

Meta reported earnings per share of $4.71 reported revenue of $36.46 billion in the quarter. According to analyst estimates compiled by Bloomberg, Wall Street expected earnings per share of $4.30 on revenue of $36.12 billion.

Shares of Meta have been on a tear, rising 116% or more in the last 12 months 45% since the beginning of the year. That’s far better than its main rival Google (GOOG, GOOGL), which is up 45%. in the last 12 months and 16% year to date.

While part of Meta’s stock performance is tied to a recovery in the digital advertising market, the company’s stock price skyrocketed last quarter after the social media company announced it would pay a $0.50 dividend. $50 billion per share and increase its share repurchase authority by $50 billion.

However, JPMorgan Securities analyst Doug Anmuth says Meta’s growth spurt could run into problems in the coming months.

“There is increasing caution around earnings as the difficult situation means there will almost certainly be a slowdown in growth beyond Q1 [comparisons] & perception of the lack of new drivers vs. [2023]“Anmuth wrote in an investor note.

Despite these potential headwinds, Meta has a number of strengths, including its emergence as a potential early winner in the AI space, as the technology is designed to improve Meta’s overall advertising capabilities.

Meta has made a number of announcements about its AI efforts in recent months, including the April 18 launch of its Meta AI chatbot and large language model Llama 3. However, the chatbot has already sparked controversy after joining a private Facebook group for mothers in Manhattan and claiming to have a child of its own, 404 Media reported.

The bot, which is available on Facebook, Instagram, WhatsApp, Messages and the Meta.AI website, cannot be turned off even if users do not want to use it.

Despite Meta’s increased focus on AI, CEO Mark Zuckerberg isn’t giving up on his quest to bring his vision for the Metaverse to life. On Monday, he took another step toward increasing the number of AR/VR headsets on the market, announcing that Meta will open source its Horizon operating system for headsets so that third-party companies can use it to build their own devices can.

Meta also stands to benefit significantly if Congress’s TikTok ban, which President Biden signed into law on Wednesday, survives legal challenges. If the app is banned from the US, it stands to reason that users and developers would turn to rival platforms like Instagram to satisfy their social media itch.