What Happened:
Shares of social network operator Meta Platforms (NASDAQ:META) fell 17.2% in the pre-market session after the company reported first-quarter results with revenue guidance for the next quarter, missing analysts' expectations. Meta also raised its forecasted operating expenses and capital expenditures for the full year. The increased costs are related to the company's AI infrastructure.
On the other hand, Meta delivered solid revenue, operating profit, and EPS growth this quarter, which beat analysts' estimates. During the quarter, Meta released its AI assistant, Meta AI. This product was rolled out across its family of apps and is powered by Llama 3, an open-source large language model that is a ChatGPT competitor. The product is quite exciting and we recommend readers to try it out.
Overall, this quarter's print was solid, but the weaker expected revenue for next quarter and higher expenses for the full year are spooking investors.
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What is the market telling us:
Meta's shares are somewhat volatile and over the last year have had 2 moves greater than 5%. But moves this big are very rare even for Meta and that is indicating to us that this news had a significant impact on the market's perception of the business.
The biggest move we wrote about over the last year was 3 months ago, when the stock gained 21.9% on the news that the company reported fourth-quarter results with revenue, operating income, and EPS, all exceeding analysts' estimates. These beats were driven by better-than-expected daily active users along with a 21% year-on-year increase in ad impressions. Meta also saw a 2% tailwind in advertising pricing. Commentary across the sector suggests the advertising market is likely to rebound in 2024, partly explaining why Meta had a strong quarter.
Looking ahead, Meta's Q1 2024 revenue guidance topped Wall Street's forecast, while its anticipated full-year 2024 capital expenditures came in slightly higher. The company expects this capex growth to come from investments in servers, including AI and non-AI hardware (you're welcome, Nvidia), and data centers as it ramps up construction for its new data center architecture. These investments will be key for its open-source large language model, Llama, to successfully compete against OpenAI's closed-source ChatGPT.
Perhaps the most interesting part of the quarter was the announcement of a quarterly dividend - the first in the company's history. Stockholders, as of February 22, 2024, were expected to receive $0.50 per share per quarter. Overall, this was a really good quarter that should please shareholders.
Meta is up 24.6% since the beginning of the year, but at $432.05 per share it is still trading 18.1% below its 52-week high of $527.34 from April 2024. Investors who bought $1,000 worth of Meta's shares 5 years ago would now be looking at an investment worth $2,233.
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