Meta stock falls 15% despite Q1 results beating estimates; here’s why

The stock of Meta Platforms, the parent entity of social media giants Facebook and Instagram, fell by 15% despite the company beating analysts' estimates with its first quarter (January-March 2024) results.

The company reported a 27% year-on-year (YoY) growth in revenue at $36.46 billion, which is higher than the estimate of $28.65 billion shared by LSEG. The net income doubled YoY to $12.37 billion, whereas the earnings per share came in at $4.71. This was higher than LSEG’s estimate of $4.32 a share.

In the extended trading session on NASDAQ, the shares settled at $493.5, down by $74.7 or 15.3% as against the previous day. Due to the decline in stock, the company’s market capitalisation value was eroded by around $200 billion.

The m-cap decline faced by Meta is its sharpest since February 3, 2022, when its stock value had plunged by $232 billion – the biggest single-day decline for any listed company in the American stock market.

Why Meta stock plunged after Q1 results

• Low revenue forecast

Meta expects its revenue in the second quarter of 2024 (April-June period) to range in the bracket of $36.5 billion-$39 billion, with a midpoint of $37.8 billion.

The midpoint, despite indicating an 18% year-on-year (YoY) surge, will be lower than the estimate of $38.3 billion, as shared by LSEG.

The revenue forecast, falling below the analysts’ estimates, is one of the major reasons behind the plunge in Meta stocks, a US market expert said, adding that this projection has evidently disappointed the market.

• Higher expenses forecast

The company, in the post earnings commentary, projected higher expenditure in the coming period “as we continue to accelerate our infrastructure investments to support our artificial intelligence (AI) roadmap”. This also includes the investment to be made by the company in its Metaverse project.

The total expense forecast for 2024 was raised to $96 billion-$99 billion, which is higher than the previous projection of $30 billion to $40 billion.

The Mark Zuckerberg-led company has also raised its capital expenditure forecast for this calendar year. The capex is seen in the range of $30 billion to $40 billion, higher than the previous projection of $35 billion-$37 billion.

The higher expense projection was also followed up with Zuckerberg saying in the post-earning conference call that the focus on artificial intelligence will “grow our investment envelope meaningfully before we make much revenue from some of these new products”. This said, an analyst, could hurt investors sentiment as Meta is yet to effectively monetise its AI services.