The stock had experienced a rapid 40% rise so far this year before the first-quarter update, which could potentially revive investor worries about the company's investments in AI and the broader metaverse.
Meta, the parent company of Facebook, WhatsApp, and Instagram, saw a significant drop in its shares following the announcement of an increased cost forecast for the current year.
After Meta's first-quarter results revealed the need for additional funding to support new artificial intelligence (AI) products and their infrastructure, investors drove the stock 10% lower in after-hours trading in New York.
Mark Zuckerberg's company, which he founded and leads, has announced a revised forecast for its 2024 capital expenditure. The new range is now $35bn-$40bn, up from the previous range of $30bn-$37bn.
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| Mark Zuckerberg, shown during a hearing at the US Congress, is facing investor demands to make prudent financial decisions. |
It also increased its projected total expenses to $96bn-$99bn, marking a $2bn rise in the lower range
These changes, though relatively small in magnitude, have the potential to revive past tensions following a 2022 dispute with investors regarding Zuckerberg's technology investments. Meta has been enhancing its advertising tools with AI capabilities and short video formats to drive revenue growth, as well as introducing AI features like a chat assistant to increase engagement on its social media platforms.
The company exceeded financial market expectations with other key metrics, as reported by LSEG data. Total revenue increased by 27% to $36.5 billion, and Meta anticipates a slight improvement in the upcoming March-June quarter.
The company's lower-than-expected total revenue fell short of market predictions, leading analysts to attribute the drop in share price to the company's outlook.
They reported that a 10% decrease in the share price resulted in a market value loss of $125 billion (£100.3 billion) as the values continued to change. The stock is still showing a 30% increase since the beginning of the year.
Sophie Lund-Yates, the main equity analyst at Hargreaves Lansdown, commented on the reaction, stating that "Meta's significant investment in AI has the potential to greatly enhance engagement on its platforms, leading to higher ad space prices for marketers.
"The group has exceeded expectations during a time of ongoing uncertainty in digital advertising.
"With over 50 countries facing elections this year, uncertainty is heightened, and digital spending typically decreases in such situations.
"This highlights Meta's extensive reach and importance to modern marketers. Additionally, Meta's fortunes may be benefiting from the uncertainty surrounding TikTok's future in the US. It's possible that TikTok could become part of the Meta family as a result of all this turmoil."
"Despite Meta's ambitious AI initiatives, it must prioritize its core advertising activities, which are the nucleus of its business. This doesn't imply neglecting AI, but rather ensuring that investments are focused and aligned with a well-defined strategic vision."