Meta's $200B Loss as Zuckerberg Highlights Cash Bleed

Key Takeaway

• Meta's share price plummeted 19%, erasing over $200 billion in value, amid heavy investments in AI and the metaverse without immediate returns.
• Reality Labs reported a $3.85 billion loss for Q1, with cumulative losses exceeding $45 billion since end of 2020.
• Meta ups 2024 capital expenditure forecast to $35-$40 billion, focusing on AI and metaverse despite early-stage profitability concerns.

Market Reaction to Meta's Earnings Call

Meta Platforms experienced a significant drop in its share price, falling as much as 19% in extended trading on Wednesday. This decline erased over $200 billion in market capitalization, despite the company reporting better-than-expected profit and revenue for the first quarter. CEO Mark Zuckerberg focused his opening remarks on artificial intelligence and the metaverse, areas where the company is not yet making money but investing heavily. He acknowledged the volatility in Meta's stock during phases of scaling new products without immediate monetization, referencing past projects like Reels and Stories.

Focus on AI and Metaverse Investments

Zuckerberg's discussion emphasized Meta's commitment to becoming a "leading AI" company and expanding in the mixed-reality headset market. He mentioned Meta Llama 3, the company's latest large language model, and the rollout of Meta AI, aimed at competing with OpenAI's ChatGPT. Zuckerberg also highlighted potential opportunities in the mixed-reality headset market for work and fitness, and the release of the operating system for Quest headsets to accelerate the mixed-reality ecosystem. Additionally, he talked about Meta's AR glasses as an ideal device for AI assistance.

Reality Labs Financial Performance

Meta's Reality Labs unit, responsible for developing hardware and software for the metaverse, reported a $3.85 billion loss for the first quarter, with sales of $440 million. Since the end of 2020, the division's cumulative losses have surpassed $45 billion. Despite these losses, Meta's stock price had almost tripled last year and was up 40% in 2024 before the earnings call. The company has been focusing on cost-cutting measures and efficiency to regain investor confidence.

Increased Expenditure and Future Outlook

Meta announced an increase in its capital expenditure forecast for 2024 to the $35 billion to $40 billion range, up from a previous forecast of $30 billion to $37 billion. This increase is attributed to accelerating infrastructure investments to support Meta's AI roadmap. Zuckerberg and CFO Susan Li emphasized the long-term potential of AI and the metaverse, despite being early in the return curve. They projected a multiyear investment cycle before AI products scale into profitable services. Despite a light revenue forecast for the second quarter, Zuckerberg encouraged investors to stay the course for potential long-term gains.

Management Quotes

• Mark Zuckerberg, CEO of Meta:

  "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." "There are several ways to build a massive business here including scaling business messaging, introducing ads or paid content into AI interactions." "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. 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."

• Susan Li, CFO of Meta:

  "While there is tremendous long-term potential, we’re just much earlier on the return curve."