- Second-quarter guidance disappoints
- AI spending plans spook investors
- $200 billion wiped off market value
Social media and technology outfit Meta Platforms (META:NASDAQ) saw its recent share price momentum stall in a big way overnight as investors fretted its ‘year of efficiency’ in 2023 would give way to a period of profligacy.
At one point more than $200 billion had been wiped off the company’s valuation as the shares fell 19% in after-hours trading.
The trigger was the company’s first-quarter update, but it wasn’t so much the numbers themselves as the words which accompanied them which drove the sell-off.
Founder and managing director Mark Zuckerberg signaled plans to continue spending heavily on the firm's AI (artificial intelligence) strategy, and, crucially, told the market it would be some time before the company made much revenue from the resulting new products.
ANOTHER METAVERSE-LIKE MIS-STEP?
AJ Bell investment director Russ Mould noted: ‘Zuckerberg has form for spending significant sums without the promise of making any money in the short term – see the money allocated to the metaverse.
‘At least AI is better understood and more tangible, but it still requires a lot to be taken on trust that Meta is investing in the right areas and when it comes to Zuckerberg it seems the trust just isn’t there.’
In 2023, Meta shares advanced 194% as investors got on board with the company’s cost-cutting agenda and the announcement of a dividend in February felt like a crystalisation of the company’s more financially-disciplined approach which, accompanied by a recovery in advertising revenue, helped deliver a record one-day gain in the share price.
First-quarter earnings per share came in at $4.71 per share versus a forecast of $4.32 while revenue was $36.46 billion against the consensus expectation of $36.16 billion. However, the midpoint of the guided second-quarter range for revenue of $37.75 billion was below the $38.3 million anticipated by analysts.
‘A VICTIM OF ITS OWN SUCCESS’
Ben Barringer, technology analyst at Quilter Cheviot, said: ‘Meta has become a victim of its own recent success as its latest results disappoint investors. Despite the stock being down 15% after hours, nothing has fundamentally changed for Meta, but there was enough in the results statement to put a brake on its recent rise.
‘Meta has done a really good job in the past 12-18 months to change the narrative around the business. However, analysts were expecting more than 27% revenue growth, and were hoping for better guides into the future. Meta had also appeared to get its costs under control, so a fresh announcement of investment into AI will spook investors, especially given the concerns they had with the amount of money being ploughed into the metaverse.’
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Tom Sieber) and the editor (Ian Conway) own shares in AJ Bell.
