Facebook owner Meta Platforms beat analysts’ estimates for third-quarter revenue and profit on Wednesday, but warned of “significant acceleration” in artificial intelligence-related infrastructure spending.
The results sent mixed signals to investors about whether digital ad sales from Meta’s core social media business would continue to cover the cost of its massive AI build.
Shares of the Menlo Park, California-based firm fell 2.9% in after-hours trading.
“Meta needs to prove it can continue to cover its AI costs as they rise next year, and any weakness in its core advertising business could make investors nervous as they continue to wait for a return on higher bets Meta’s AI giants,” said the director of Emarketer. analyst Jasmine Enberg.
Like its Big Tech peers, Meta has invested heavily in data centers to take advantage of the generative AI boom. Unlike cloud service providers, however, it doesn’t expect to make money on those investments right away and is therefore subject to more scrutiny from investors about its spending.
The world’s largest social media company, led by CEO Mark Zuckerberg, kept costs under control in the third quarter, with total expenses of $23.2 billion and capital expenditures of $9.2 billion. He projected a slightly improved spending picture for the year as well, narrowing the total spending forecast to $96 billion to $98 billion.
In its press release, however, it warned of “a significant acceleration in infrastructure spending growth next year as we recognize higher growth in depreciation and operating expenses of our expanding infrastructure fleet.”
Investors have been wary of Meta’s spending in recent months. Its shares sank in April after it revealed a higher-than-expected spending forecast, knocking $200 billion off its stock market value.
That capped a string of strong quarters for Meta, which has bounced back from a share price slump in 2022 by trimming its workforce, building on investor enthusiasm for AI and earlier this year issuing a dividend of her first ever.
Meta’s earnings follow encouraging results from digital ad companies Alphabet and Snap, both of which beat third-quarter revenue estimates on Tuesday thanks in part to growth in AI-assisted ad sales.
Meta reported third-quarter earnings of $6.03 per share, compared with estimates of $5.25 per share, according to data compiled by LSEG. Third-quarter revenue came in at $40.59 billion, compared with analysts’ estimates of $40.29 billion.
The company also forecast fourth-quarter revenue of between $45 billion and $48 billion, compared with analysts’ estimates of $46.31 billion, according to data from LSEG.
According to analysts, advertising accounts for the vast majority of Meta’s revenue, meaning higher marketing spending during the holiday season could provide a crucial boost to the company’s bottom line.
Meta’s daily active people (DAP), a metric it uses to track unique users who open one of its apps in a day, rose 5% in the third quarter to 3.29 billion. DAP increased by 7% in the previous June quarter, to ALL 3.27 billion.
Meta is well-positioned to squeeze more revenue from users as user growth slows, given its AI tools to show people more content that matches their interests, Enberg said.
The company’s Reality Labs division, which makes the Quest virtual reality headset, EssilorLuxottica’s Ray-Ban smart glasses and upcoming augmented reality glasses, lost $4.4 billion in the third quarter, narrower than analysts’ estimates. for a loss of 4.7 billion dollars.
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