Meta Platforms, the parent company of Facebook, has issued a warning about the significant increase in expenses related to artificial intelligence infrastructure next year. Despite this, the company managed to surpass analysts’ expectations for both revenue and profit in the third quarter.
The results have left investors unsure about whether the revenue generated from digital advertising on Meta’s social media platforms will be enough to cover the rising costs of its AI development. As a result, Meta’s stock saw a 2.9% decline in after-hours trading.
Emarketer principal analyst Jasmine Enberg noted that Meta needs to demonstrate its ability to cover the increasing costs of AI as they continue to rise next year. Any weakness in its core advertising business could make investors anxious as they await a return on Meta’s significant AI investments.
Like other major tech companies, Meta has made substantial investments in data centers to take advantage of the growth in generative AI. However, unlike cloud service providers, Meta does not expect an immediate return on these investments, leading to increased scrutiny from investors regarding its spending.
During a conference call with analysts, Meta CEO Mark Zuckerberg acknowledged that more infrastructure spending might not be what investors want to hear in the short term. Nonetheless, he emphasized the company’s commitment to continued investment, citing the significant opportunities in the field.
Zuckerberg also revealed that Meta AI, a generative AI chatbot assistant, has surpassed 500 million monthly active users. This marks a significant increase from the 400 million users reported in September.
Although Meta managed to keep costs in check during the third quarter, with total expenses of $23.2 billion and capital expenditure of $9.2 billion, it anticipates a significant acceleration in infrastructure expense growth next year. This is due to higher growth in depreciation and operating expenses related to its expanded infrastructure fleet.
Investors have been cautious about Meta’s spending in recent months, with the company’s shares taking a hit in April after disclosing a higher-than-expected expense forecast. However, Meta has made strides in recovering its stock-market value by focusing on AI investments, reducing its workforce, and issuing its first dividend earlier this year.
The company’s shares have seen a significant increase from their lowest point, up around 500%, and have risen by approximately 67% so far this year.
Meta’s earnings report follows positive results from other digital advertising giants like Alphabet and Snap, both of which beat third-quarter revenue estimates. These companies attributed their success in part to the growing sales of AI-assisted ads.
In the third quarter, Meta reported a profit of $6.03 per share, surpassing analysts’ estimates of $5.25 per share. Revenue for the quarter reached $40.59 billion, slightly exceeding analysts’ expectations of $40.29 billion.
Looking ahead, Meta forecasted fourth-quarter revenue between $45 billion and $48 billion, compared to analysts’ estimates of $46.31 billion. Analysts believe that higher marketing spend during the holiday season could provide a significant boost to Meta’s advertising revenue.
Meta’s family daily active people (DAP) metric, which tracks unique users across its apps in a day, grew by 5% in the third quarter to 3.29 billion. This follows a 7% increase in the preceding June quarter, reaching 3.27 billion.
Despite slowing user growth, Meta is well-positioned to increase revenue per user through its AI tools, which can deliver more personalized content to users based on their interests.
In the third quarter, Meta’s Reality Labs division, responsible for products like the Quest virtual reality headsets and smart glasses in collaboration with Ray-Ban, reported a loss of $4.4 billion, narrower than analyst estimates of a $4.7 billion loss. Executives expressed excitement about the progress and consumer interest in smart glasses, particularly looking ahead to potential investments in Reality Labs for 2025.