Meta Q1 revenue growth is the fastest in three years but the outlook is poor. The surge in AI spending scared the market and plunged 18% after the market | Financial Report Insights – Wall Street Insights

After the U.S. stock market closed on Wednesday, April 24, Meta, the “Metaverse Platform” and social media and digital advertising giant that is betting heavily on AI, announced its first quarter financial report for fiscal year 2024.

Meta’s first-quarter revenue and profit were both higher than expected, and core advertising revenue growth accelerated. However, second-quarter revenue is expected to be between US$36.5 billion and US$39 billion, with the midpoint of the range equaling a year-on-year growth of 18%, which is weaker than market expectations of US$38.24 billion or year-on-year growth. 20%, causing it to plummet 18% after the market opened.

Some analysts said that Tesla’s financial report was worse than expected but its stock price soared by double digits. Meta’s financial report was better than expected but its stock price plummeted by double digits. “Fundamental investment common sense is dead.”

On Wednesday, Facebook parent company Meta closed down 0.5%, but off the two-month low set on Friday. The stock has risen 39% this year, and has doubled by more than 130% in the past 12 months, significantly outperforming the 24% increase of the S&P market, bringing the market value back to US$1 trillion, mainly due to efforts to promote user participation, Investment in AI technology and the resulting higher advertising revenue.

Before the release of the financial report, Wall Street was optimistic that artificial intelligence would bring higher user engagement and advertising return rates, an improved advertising environment, and a more streamlined operating cost structure. Under the consensus expectation of “Strong Buy”, a total of 40 people rated “Buy”, 2 people rated “Hold”, and only 1 person recommended “Sell”. The average price target of $547.45 represents a 10% increase. space.

MetaRevenue growth in the first quarter was the fastest in three years, but Metaverse still suffered a huge loss of nearly 39Billions of dollars, AIDrive advertising growth

The financial report shows that Meta’s revenue in the first quarter was US$36.46 billion, higher than analysts’ expectations of US$36.12 billion, a year-on-year increase of 27%. It not only marked the fifth consecutive quarter of accelerated revenue growth, but also the fastest pace in the three years since 2021. Expansion speed.

Among the profit indicators, EPS was US$4.71 per share, higher than the expected US$4.32 and doubling or increasing 114% from US$2.20 in the same period last year. Operating profit increased 91% year-on-year to US$13.82 billion, and operating profit margin increased to 38% from 25% in the same period last year. Net profit increased 117% year-on-year to US$12.37 billion.

Revenue from its core advertising business was US$35.64 billion, basically in line with expectations of US$35.57 billion, equivalent to a year-on-year increase of 26.8%, faster than the 24% increase in the previous quarter, and its share of total revenue increased slightly to approximately 98%.

Previous analysts said that due to strong demand from e-commerce and games, improved advertising revenue and operational efficiency may drive Meta’s first-quarter earnings higher, but the slowdown in the growth of Chinese advertisers, which accounts for about 10% of the company’s total advertising sales, is potential risks.

Other analysts pointed out that the good news is that the highlight of this financial report is that the advertising business driven by AI is driving total revenue growth.

Reality Labs, which is responsible for developing virtual reality software and hardware technologies such as the Metaverse, has suffered huge losses of nearly US$4 billion for several consecutive quarters.

In the first quarter, the department’s sales were US$440 million, weaker than the expected US$513 million, a year-on-year increase of about 30%; operating losses were US$3.85 billion, but better than the market expected loss of US$4.31 billion. Previously, the unit’s operating losses had accumulated to $42 billion since the end of 2020.

Key user and monetization indicators are improving quarter by quarter, and analysts say the average price per unit of advertising has increased significantly.

Among key user data and indicators that measure the ability to monetize the user base, the daily active users (DAP) of Meta’s application families averaged 3.24 billion in March, a year-on-year increase of 7%; the number of ad impressions served in application families year-on-year An increase of 20%; the average price of unit advertising increased by 6% year-on-year, indicating that these indicators are improving continuously quarter by quarter.

Meta’s official guidance had expected total revenue in the first quarter of 2024 to be in the range of $34.5 billion to $37 billion. Revenue in the fourth quarter of last year increased 25% year-on-year to US$40.1 billion, mainly due to a 24% increase in advertising revenue, and adjusted earnings per share tripled to US$5.33, both higher than market expectations. Key indicators have improved, with the overall number of monthly active users reaching 3.98 billion, a year-on-year increase of 6.4%.

Meta stated that starting from the first quarter report of 2024, it will no longer report DAU (number of daily active users), MAU (number of monthly active users), ARPU (average revenue per unit user) and MAP (monthly active users of the application family) ) and other key indicators, instead focusing on the year-on-year percentage change in ad impressions and the average price per unit of advertising by geographic segment, while continuing to report on DAP (daily active users of the application family) and DAP-based ARPP ( average income per unit of people).

The company explained that this is because “user”-based activity metrics such as DAU, MAU and ARPU only come from Facebook and Messenger, while DAP and “people”-based ARPP can cover Data on the “whole family” of apps like Facebook, Instagram, Messenger and WhatsApp.

Raise the lower limit of this year’s total expenditure range by 20billion due to investment in AIAnd a substantial increase in capital expenditure expectations

At the same time, Meta’s total costs and expenses in the first quarter were US$22.64 billion, a year-on-year increase of 6%. Capital expenditures were $6.72 billion. Cash, equivalents and marketable securities held at the end of the quarter were $58.12 billion, and free cash flow was $12.53 billion.

During the quarter, the company repurchased $14.64 billion in Class A common stock and paid $1.27 billion in dividends. The total number of employees as of March 31 this year was 69,329, a year-on-year decrease of 10%, but an increase of 3% or 2,000 from 67,317 at the end of last year.

Its earnings statement said the first quarter was a good start to the year. The family of applications is showing strong momentum and making important progress in its long-term strategy for artificial intelligence and the Metaverse, which has the potential to change the way people interact with Meta services in the coming years.

In addition to the midpoint of the guidance range for next quarter’s revenue falling short of expectations, Meta admitted that rising infrastructure investment and legal costs will bring total expenses this year to US$96 billion to US$99 billion, which means that the lower end of the range has been raised from the previous forecast of US$94 billion. 2 billion US dollars.

Company reiterates expectations that Reality Labs’ operating losses will increase significantly year over yearand by accelerating infrastructure investment to supportartificial intelligenceroadmap, while significantly raising its capex forecast for this year to 350billion to 400One hundred million U.S. dollars, previously guided by US$30 billion to US$37 billion. Capital expenditures are expected to continue to increase next year.

Why is it important?

The market has been volatile in recent weeks. Even Meta, which has risen 40% this year, last week suffered its largest weekly decline since August last year. The latest quarterly report may test the social media giant’s rapid U-turn towards the Metaverse and AI. Story logic.

At the same time, this week’s financial reports of large technology stocks involved in AI will not only reveal how the giants plan to allocate their artificial intelligence infrastructure budgets and whether AI will continue to participate in improving profits and promoting growth, but may also provide a much-needed catalyst for the market under pressure, and provide financial reports. The remainder of the quarter sets the tone and even revives market momentum.

However, as Wall Street expectations rise before Meta’s earnings report, Evercore ISI is worried that Meta will repeat the dilemma of last week when Netflix’s earnings exceeded expectations but its stock price fell:

“Meta and Netflix are both in the consumer Internet field. Meta may need to clearly exceed expectations and improve performance guidance in order to maintain the current stock price level. This threshold is already high.”

What are you most concerned about?

Investors will be paying close attention to more details on AI progress and how Meta plans to apply these tools to further improve advertising strategies and user engagement, including new features such as Reels short video products and chat app direct advertising (Click-to Messenger).

Although Meta is promoting AI research, betting heavily on the virtual reality metaverse, and selling related hardware products such as head-mounted displays, as digital advertising accounts for about 97% of the company’s revenue all year round, how to maintain advertising growth remains the market’s top concern. Focus.

At the same time, with Meta last week launching “the most powerful open source large language model to date” Llama 3, upgrading the artificial intelligence assistant Meta AI, and announcing this week the opening of the mixed reality operating system Meta Horizon OS and a series of major AI initiatives, the market will be highly Watch out for huge expenses and costs.

Some analysts say that Meta is redesigning its data center, creating custom computing chips, and purchasing hundreds of thousands of Nvidia’s most high-end chips in order to realize its artificial intelligence ambitions. The company has raised the upper limit of its capital expenditure guidance for this year by US$2 billion to US$37 billion. If it raises its expenditure guidance again in the first quarter report, it may cause concern unless revenue growth stays on track.

Third Bridge, a global investment research company, pointed out that Meta has undergone quite significant changes in a relatively short period of time. From restructuring and layoffs at the end of 2022 to being defined as the “year of efficiency” in 2023, its revenue growth has indeed Speeding up:

“If a company is delivering significant growth and beating expectations, investors appear to have more patience for significant increases in capital expenditures and operating expenses in tandem. But its expenses continue to grow rapidly and revenue growth slows in 2022, when the stock price Was in trouble.”

What does Wall Street think?

Analysts such as Wells Fargo and JPMorgan Chase are concerned that Meta’s strong first-quarter earnings have been fully priced in, and that its high-speed growth may cool down in the next few quarters, requiring new catalysts to maintain advertising momentum:

“Due to the pressure of base effects in year-on-year comparisons with 2023 performance, and market expectations of a lack of new drivers this year compared to last year, people are becoming increasingly cautious about the Meta growth deceleration that will almost certainly occur after the first quarter.”

Brokerage firm Bernstein believes that direct advertising in chat applications, monetization of commercial text messages within WhatsApp, and generative AI-driven advertising product innovation are all growth catalysts for Meta. Goldman Sachs is also optimistic about Meta’s strong digital advertising and the continuous improvement of digital platform products such as short videos in the long term. In particular, Instagram Reels may be a key driver of revenue growth in the next few years.

Bank of America believes that Meta is still in the early stages of the AI-led monetization cycle (including Reels short video, SMS and AI-driven advertising revenue improvement), the market price of the company’s AI assets is undervalued, and Meta may become a TikTok limitation The main beneficiary of the bill, the U.S. government requires TikTok to divest from the Chinese company ByteDance within nine months to a year.

MetaThere are also regulatory concerns. In February, European consumer organizations from eight countries accused Meta of violating EU privacy rules when collecting user data. The EU Data Protection Board said last week that Meta and other large online platforms should allow users to use their services free of charge and without interference from targeted advertising.

Some analysts also said that last week’s upgraded Meta AI assistant was the company’s largest artificial intelligence initiative in history, but it has quickly caused controversy. It allegedly would fabricate itself as the parent of a wealthy, gifted, disabled child and attempt to sell items that did not exist.

Risk warning and disclaimer

Market risk, the investment need to be cautious. This article does not constitute personal investment advice, nor does it take into account the special investment objectives, financial situation or needs of individual users. Users should consider whether any opinions, views or conclusions contained in this article are appropriate to their particular circumstances. Invest accordingly and do so at your own risk.