Facebook owner Meta Platforms on Wednesday beat analysts’ estimates for third-quarter revenue and profit, but warned of “significant upside.” Artificial intelligence-related infrastructure spending,
The results sent mixed signals to investors on whether digital ad sales from Meta’s core social media business will continue to cover the costs of its massive AI buildout.
Shares of the Menlo Park, California-based company fell 2.9% in after-hours trading.
“Meta needs to prove it can continue to cover its AI costs as it grows next year, and any weakness in its core advertising business could unsettle investors as they look for Meta,” the eMarketer principal said. “Will continue to wait for returns on big AI bets.” Analyst Jasmine Enberg.
Like its Big Tech peers, Meta has invested heavily in data centers to take advantage of the generative AI boom. However, unlike providers of cloud services, it does not expect to make money immediately from those investments and is therefore subject to investor scrutiny around its spending.
The world’s largest social media company, headed by CEO Mark Zuckerberg, kept costs under control in the third quarter, with total expenses at $23.2 billion and capital expenditures at $9.2 billion. It forecast a slight improvement in the expenditure picture for the year, lowering its total expenditure estimate to $96 billion to $98 billion.
However, in its press release, it warned of “a significant increase in infrastructure spending next year as we recognize the depreciation of our expanding infrastructure fleet and higher growth in operating expenses.”
Investors have been wary of Meta’s spending in recent months. Its shares sank after it reported higher-than-expected spending forecasts in April, knocking off $200 billion from its stock-market value.
That caps a run of strong quarters for Meta, which has bounced back from a share-price slump by reducing its workforce in 2022, leaning into investor enthusiasm about AI and issuing its first dividend earlier this year .
Meta’s earnings come after encouraging results digital advertising bellwethers alphabet and Snap both beat third-quarter revenue estimates on Tuesday due to surging sales of AI-assisted ads.
Meta reported third-quarter profit 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’ expectations of $40.29 billion.
The company is expected to post fourth-quarter revenue of $45 billion to $48 billion, according to LSEG data, compared with analysts’ estimate of $46.31 billion.
According to analysts, the bulk of Meta’s revenue comes from advertising, meaning higher marketing spend during the holiday season could provide a significant boost to the company’s earnings.
Meta’s family of daily active people (DAPs), a metric it uses to track unique users who open any of its apps in a day, grew 5% in the third quarter to 3.29 billion. DAP grew 7% to Rs 3.27 billion in the last June quarter.
Enberg said Meta is well-positioned to squeeze more revenue from users as user growth slows, with its AI tools showing people more content matching their interests.
The company’s Reality Labs division, which produces its Quest virtual reality headset, smart glasses made from Essilor Luxottica’s Ray-Bans and upcoming augmented-reality glasses, lost $4.4 billion in the third quarter, compared to $4.7 billion. Which is lower than analyst estimates.
