Mark Zuckerberg started deadThe company profits by talking about artificial intelligence. He then moved on to Metaverse, promoting his company's headphones, glasses, and operating system. He spent almost all of his opening remarks focusing on the many ways Meta loses money.
Investors weren't interested. Meta shares fell as much as 19% in extended trading on Wednesday, wiping out more than $200 billion in market value. This decline came despite Meta announcing better-than-expected profits and revenues for the first quarter.
Zuckerberg seemed ready to sell.
“I think it's worth noting that historically we've seen a lot of volatility in our stock during this phase of our product catalog where we're investing in scaling a new product but haven't monetized it yet,” Zuckerberg said. . He cited previous efforts such as short-form video service Reels and Stories and the move to mobile.
Meta CEO Mark Zuckerberg testifies before the Senate Judiciary Committee at the Dirksen Senate Office Building on January 31, 2024 in Washington, DC.
Alex Wong | Getty Images
Meta generates 98% of its revenue from digital advertising. But as much as Zuckerberg talked about advertising, he was looking to the future and ways the company could turn its current investments into advertising dollars. Discussing Meta's efforts to build “groundbreaking AI,” he said, “There are several ways to build a massive business here including scaling commercial messages, or delivering ads or paid content in AI interactions.”
He spent some time talking about Meta Llama 3, the company's latest big language model, and the recent rollout of Meta AI, the company's answer to OpenAI's ChatGPT.
Zuckerberg then moved on to potential opportunities to expand into the mixed reality headset market, such as headsets for work or fitness. Meta opened access to the operating system that powers its Quest headsets on Monday, which Zuckerberg said will help the mixed reality ecosystem grow faster.
He also talked about Meta's AR glasses, which he described as “the perfect device for an AI assistant because you can let them see what you see and hear what you hear.”
Ray-Ban Meta Headliner smart glasses.
Jake Piazza | CNBC
Meanwhile, Meta's Reality Labs unit, which houses the company's hardware and software for developing the nascent Metaverse, continues to bleed cash. Reality Labs reported sales of $440 million for the first quarter and losses of $3.85 billion. The division's cumulative losses since the end of 2020 have exceeded $45 billion.
Zuckerberg has bought himself some time.
Meta's stock price has nearly tripled in the past year and, as of Wednesday's close, is up 40% in 2024. It reached a record high of $527.34 in early April.
After a tough 2022, during which the company lost about two-thirds of its value, Zuckerberg appears to have regained Wall Street's trust.
The rally was driven by Meta's CEO's cost-cutting plan early last year, when he told investors that 2023 would be a “year of efficiency.” The company has reduced headcount and eliminated non-essential projects in an effort to become a “stronger, smarter organization.”
Zuckerberg said on Wednesday that Meta would continue to operate efficiently, but shifting existing resources to investments in artificial intelligence would “meaningfully grow our portfolio.”
2024 capital expenditures are expected to range between $35 billion to $40 billion, an increase from the previous forecast of $30 billion to $37 billion “as we continue to accelerate our investments in infrastructure to support our AI roadmap,” Meta said. . He said.
Zuckerberg said he expects to see a “multi-year investment cycle” before Meta's AI products turn into profitable services, but noted that the company has a “proven track record” in that department.
Meta's chief financial officer, Susan Lee, echoed Zuckerberg's comments, saying the company needs to develop advanced models and large-scale products before it can generate meaningful revenue.
“Although there is huge potential in the long term, we are still very early on the return curve,” Lee said.
Even before the call began, investors were reducing their holdings. This is because Meta issued a light revenue forecast for the second quarter, which overshadows the first quarter results.
As the stock slide intensified, Zuckerberg told investors that if they were willing to come along for the ride, they might be rewarded.
“Historically, investing to build these new, large-scale experiences in our apps has been a very good long-term investment for us and the investors who have stayed with us, and the initial signs are very positive here as well,” Zuckerberg said. “But building groundbreaking AI will also be a larger undertaking than the other experiments we have added to our applications and will likely take several years.”
