Meta projected on Wednesday that revenue for the current quarter would be lower than what Wall Street anticipated and said it would spend billions of dollars more on its artificial intelligence efforts, even as it reported robust revenue and profits for the first three months of the year.
Revenue for the company, which owns Facebook, Instagram, WhatsApp and Messenger, was $36.5 billion in the first quarter, up 27 percent from $28.6 billion a year earlier and slightly above Wall Street estimates of $36.1 billion, according to data compiled by FactSet. Profit was $12.4 billion, more than double the $5.7 billion a year earlier.
But Meta’s work on A.I., which requires substantial computing power, comes with a lofty price tag. The Silicon Valley company said it planned to raise its spending forecast for the year to $35 billion to $40 billion, up from a previous estimate of $30 billion to $37 billion. The move was driven by heavy investments in A.I. infrastructure, including data centers; chip designs; and research and development.
Meta also predicted that revenue for the current quarter would be $36.5 billion to $39 billion, lower than analysts’ expectations.
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The combination of higher spending and lighter-than-expected revenue spooked investors, who sent Meta’s shares down more than 16 percent on Wednesday afternoon after they ended regular trading at $493.50.
Five U.S. Cases Targeting Big Tech
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For years, Apple, Google, Meta and other tech giants operated unfettered. Now, regulators around the world are taking steps to compel them to make major shifts to their products and businesses. In the United States, several cases could result in orders for the companies to change their practices. Here’s what to know.
Apple. The Justice Department joined 16 states and the District of Columbia in filing a lawsuit against Apple, arguing that it had violated antitrust laws with practices that were intended to keep customers reliant on their iPhones by preventing other companies from offering applications that compete with Apple products.
Amazon. The Federal Trade Commission and 17 states have sued the e-commerce giant, accusing it of protecting a monopoly over swaths of online retail by squeezing merchants and favoring its own services. The outcome could alter the way Americans shop online.
Meta. The Federal Trade Commission and more than 40 states have accused Facebook of buying up its rivals, particularly Instagram in 2012 and WhatsApp two years later, to illegally squash competition that could have one day challenged the company’s dominance. They have called for the deals to be unwound.
Google. The Justice Department has targeted the tech giant with two separate lawsuits. In 2020, the agency accused Google of illegally protecting its monopoly over search and search advertising. In 2023, the Justice Department and a group of eight states accused it of illegally abusing a monopoly over the technology that powers online advertising.
“Meta’s earnings should serve as a stark warning for companies reporting this earnings season,” said Thomas Monteiro, a senior analyst at Investing.com. While the company’s results were robust, “it didn’t matter as much as the reported lowering revenue expectations” for the current quarter, he said, adding, “Investors are currently looking at the near future with heavy mistrust.”
Meta, which has been in perpetual transition in recent years, has increasingly positioned itself as poised to capitalize on A.I. The technology has drawn a surge in interest after an explosion of generative A.I., which can produce text, video, audio and images. Mark Zuckerberg, Meta’s chief executive, has for years invested to drive A.I. advancements, some of which have improved the company’s advertising systems and bolstered its revenue.
After OpenAI released the ChatGPT chatbot in 2022, Mr. Zuckerberg refocused Meta to plug A.I.-powered products into nearly every corner of his empire, from Instagram’s and Facebook’s search tools to image-generation software and smart glasses. Last week, Meta unveiled new versions of its A.I.-powered smart assistant software that it has incorporated across its apps.
Mr. Zuckerberg has also spent billions investing in graphics processing units, or GPUs, the chips that can carry out the complex calculations to power artificially intelligent systems.
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But Meta continues to burn billions of dollars chasing Mr. Zuckerberg’s vision of the immersive digital world of the metaverse. Reality Labs, Meta’s hardware division, lost roughly $3.8 billion in the first quarter while making $440 million in revenue, spending heavily to build virtual and augmented reality goggles and software, as well as the company’s Horizon operating system for V.R. headsets.
In a call with investors on Wednesday, Mr. Zuckerberg said that the company’s Ray-Ban smart glasses — a Reality Labs effort — were an early success and that some styles had sold out in some markets. Meta recently updated the glasses with A.I. software that acts as a kind of audio assistant that can answer questions or translate text into different languages.
Meta has experienced several ups and downs in recent years. After a surge in users and activity during the initial Covid-19 lockdowns, its business was battered by a decline in the digital advertising market in 2022. Last year, Mr. Zuckerberg instituted a cost-cutting program, culling roughly a third of the company’s work force and flattening layers of middle management.
Revenue has since surged, buoyed by a rebound in the ad market and more people regularly returning to one or more of the company’s apps.
Inside the World of Tech
- Apple: The company said sales fell 4%, as revenue from iPhones, iPads and wearables like the Apple Watch declined. Apple’s struggles were most worrisome in China, the world’s second-largest smartphone market, where sales fell 8 percent.
- Alphabet’s Revenue Jump: Google’s parent company reported strong revenue growth in its latest quarter from its search engine and video platform, YouTube, as its market-leading position in online advertising continued to reap rewards despite recent industry fluctuations.
- Tech Law Logjam: For years, federal lawmakers have tried to pass legislation to rein in the tech giants. The TikTok law was their first success. Can it be repeated?
- Silicon Valley Worth: Andreas Bechtolsheim, the first investor in Google, has an estimated $16 billion fortune. He recently settled charges that he engaged in insider trading for a profit of $415,726.
On Wednesday, Meta said more than 3.24 billion people use one or more of its apps every day. In the investor call, Mr. Zuckerberg specifically called out WhatsApp, noting that the messaging service was one that people regularly return to.
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He also had a message for Meta’s shareholders: Bear with us. “Historically we’ve seen a lot of volatility in our stock in this phase of our product playbook,” he said on the call with investors.
He pointed to Reels, Meta’s TikTok-like video product, and Stories, the company’s disappearing photo and video messages service. While those features had no immediate path to making money, they grew quickly and eventually proved lucrative, he said. Mr. Zuckerberg said Meta typically focused on building new products to be used by as many people as possible before worrying about how to profit from them.
The money, he added, will come.
“We should all have quite a bit of confidence that if those are on a good track to scale, that they’re going to end up being very large businesses,” he said.
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