Mark Zuckerberg, CEO of Meta testifies earlier than the Senate Judiciary Committee at the Dirksen Senate Office Building on January 31, 2024 in Washington, DC.
Alex Wong | Getty Images
Mark Zuckerberg began Meta‘s earnings call by speaking about synthetic intelligence. Then he moved onto the metaverse, touting his company’s headsets, glasses and working system. He spent nearly the entirety of his opening remarks targeted on the many ways Meta loses cash.
Investors weren’t into it. Meta shares tumbled as a lot as 19% in prolonged buying and selling on Wednesday, wiping out greater than $200 billion in market cap. The drop got here regardless of Meta reporting better-than-expected revenue and income for the first quarter.
Zuckerberg appeared prepared for the sell-off.
“I think it’s worth calling that out, that we’ve historically seen a lot of volatility in our stock during this phase of our product playbook where we’re investing in scaling a new product but aren’t yet monetizing it,” Zuckerberg mentioned. He cited previous efforts like short-video service Reels, Stories and the transition to cell.
Meta generates 98% of its income from digital promoting. But to the extent Zuckerberg talked about adverts, he was seeking to the future and the ways the company might doubtlessly flip its present investments into advert {dollars}. In discussing Meta’s effort to construct a “leading AI,” he mentioned, “There are several ways to build a massive business here including scaling business messaging, introducing ads or paid content into AI interactions.”
He frolicked speaking about Meta Llama 3, the company’s latest massive language mannequin, and the recent rollout of Meta AI, the company’s reply to OpenAI’s ChatGPT.
Zuckerberg then moved onto potential alternatives for growth inside the combined actuality headset market, like a headset for work or health. Meta opened up access to the working system that powers its Quest headsets on Monday, which Zuckerberg mentioned will assist the combined actuality ecosystem develop quicker.
He additionally talked up Meta’s AR glasses, which he referred to as “the ideal device for an AI assistant because you can let them see what you see and hear what you hear.”
The Ray-Ban Meta Headliner good glasses.
Jake Piazza | CNBC
In the meantime, Meta’s Reality Labs unit, which homes the company’s {hardware} and software program for growth of the nascent metaverse, continues to bleed cash. Reality Labs reported gross sales of $440 million for the first quarter and $3.85 billion in losses. The division’s cumulative losses since the finish of 2020 have topped $45 billion.
Zuckerberg has purchased himself a while.
Meta’s inventory worth nearly tripled final yr and, as of Wednesday’s shut, was up 40% in 2024. It reached a file $527.34 in early April.
After a brutal 2022, throughout which the company misplaced about two-thirds of its value, Zuckerberg seems to have regained the confidence of Wall Street.
The driver for the rally has been a cost-cutting plan that the Meta CEO put in place early final yr, when he advised buyers that 2023 could be the “year of efficiency.” The company slashed headcount and eradicated pointless tasks in an effort to turn into a “stronger and more nimble organization.”
Zuckerberg mentioned Wednesday that Meta will proceed to function effectively, however that shifting present assets to investments in AI will “grow our investment envelope meaningfully.”
Capital expenditures for 2024 are anticipated to be in the $35 billion to $40 billion vary, a rise from a previous forecast of $30 billion to $37 billion “as we continue to accelerate our infrastructure investments to support our artificial intelligence (AI) roadmap,” Meta mentioned.
Zuckerberg mentioned he expects to see a “multiyear investment cycle” earlier than Meta’s AI merchandise will scale into worthwhile providers, however famous that the company has a “strong track record” in that division.
Meta finance chief Susan Li echoed Zuckerberg’s remarks, saying the company must develop superior fashions and scale merchandise earlier than they’ll drive significant income.
“While there is tremendous long-term potential, we’re just much earlier on the return curve,” Li mentioned.
Even earlier than the call started, buyers have been trimming their holdings. That’s as a result of Meta issued a lightweight income forecast for the second quarter, overshadowing the first-quarter beat.
As the inventory plunge intensified, Zuckerberg advised buyers that in the event that they’re prepared to return alongside for the experience, they could be rewarded.
“Historically, investing to build these new scaled experiences in our apps has been a very good long-term investment for us and for investors who stuck with us and the initial signs are quite positive here too,” Zuckerberg mentioned. “But building a leading AI will also be a larger undertaking than the other experiences we’ve added to our apps and this is likely going to take several years.”