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Meta's Profits Soar, Yet Shares Plummet: Insights & Impact Analysis

Meta's Q1 profit more than doubled, driven by higher advertising revenue and increased ad prices. Revenue rose by 27% compared to the same period last year. Meta's revenue guidance for the current quarter fell short of analysts' expectations.

The increase was attributed to higher advertising revenue and a 6% rise in the average price of ads on its platforms. However, despite the strong profit growth, Meta's shares experienced a sharp decline in after-hours trading due to lukewarm revenue guidance.


In the January-March period, Meta Platforms Inc. reported earnings of $12.37 billion, or $4.71 per share, compared to $5.71 billion, or $2.20 per share, in the same period last year. This represents a significant increase in profitability. Additionally, revenue rose by 27% to $36.46 billion from $28.65 billion.


While Meta's financial performance exceeded analysts' expectations, the company's revenue guidance for the current quarter fell short. Meta anticipates revenue between $36.5 billion and $39 billion, while analysts were expecting $38.25 billion for the second quarter. This discrepancy in revenue projections contributed to the decline in Meta's share price.


Furthermore, Meta revealed that its capital expenses for 2024 are expected to be higher than initially anticipated. The company cited investments in artificial intelligence as the reason for the increased expenses. Meta now forecasts expenses in the range of $35 billion to $40 billion, up from the previous guidance of $30 billion to $37 billion.


Meta has been heavily investing in AI and recently unveiled a new set of artificial intelligence systems. These systems power what CEO Mark Zuckerberg refers to as "the most intelligent AI assistant that you can freely use." Meta, along with other leading AI developers such as Google and OpenAI, as well as startups like Anthropic, Cohere, and France's Mistral, are actively developing new AI language models and competing to offer the smartest and most efficient chatbots to customers.


Thomas Monteiro, a senior analyst at Investing.com, commented on Meta's earnings, stating, "Meta's earnings should serve as a stark warning for companies reporting this earnings season. Even though the company exceeded estimates in all top- and bottom-line metrics, the reported lowering revenue expectations for Q2 had a significant impact. This demonstrates that investors are currently approaching the near future with caution."


In contrast, electric vehicle manufacturer Tesla reported a 55% decline in net income for the first quarter. However, Tesla's announcement of plans to accelerate production of new, more affordable vehicles resulted in a 12% increase in its stock price.


Despite the revenue guidance disappointment, Meta continues to see growth in its user base. The number of people using Meta's apps, including Facebook, Instagram, WhatsApp, and Messenger, reached an average of 3.24 billion users in March, representing a 7% year-over-year increase. Starting this quarter, Meta will no longer disclose user figures specifically for Facebook.


As part of its efforts to improve efficiency, Meta reduced its workforce by 10% year-over-year, with 69,329 employees as of March 31. CEO Mark Zuckerberg referred to 2023 as the "year of efficiency" and implemented layoffs to reduce expenses.


Following the release of the earnings report, Meta's shares experienced a significant decline of 16% in after-hours trading. Despite this setback, Meta's stock price has more than doubled over the past year, largely driven by the rebound in online advertising.

 
  • Meta's Q1 profit more than doubled, driven by higher advertising revenue and increased ad prices.

  • Revenue rose by 27% compared to the same period last year.

  • Meta's revenue guidance for the current quarter fell short of analysts' expectations.


Source: AP NEWS

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