Meta Platforms Inc., under the leadership of CEO Mark Zuckerberg, faced a turbulent earnings call as investors responded with skepticism to the company’s focus on artificial intelligence (AI) and the metaverse.
Despite the social media conglomerate reporting stronger-than-anticipated profit and revenue for the first quarter, shareholders expressed disappointment, causing Meta’s shares to nosedive by as much as 19% in extended trading on Wednesday.
This downturn resulted in a staggering loss of over $200 billion in market capitalization, underlining a significant backlash against Meta’s ambitious plans.
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According to CNBC, Zuckerberg, in a bid to assuage investor concerns, addressed the sell-off directly, acknowledging the historical volatility of Meta’s stock during periods of product expansion and investment. Drawing parallels with past initiatives like Reels and Stories, he underscored Meta’s steadfast commitment to scaling new products despite initial financial setbacks.
“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,” Zuckerberg said.
While Meta currently relies heavily on digital advertising for 98% of its revenue, Zuckerberg hinted at future avenues for monetization through AI-driven innovations. He outlined potential revenue streams, including business messaging, ads, and paid content integrated into AI interactions.
Highlighting Meta’s advancements in AI technology, such as Meta Llama 3 and Meta AI, Zuckerberg positioned the company as a formidable contender in the emerging competitive AI industry.
“There are several ways to build a massive business here including scaling business messaging, introducing ads or paid content into AI interactions,” he said.
Transitioning to Meta’s ventures in mixed reality headsets, Zuckerberg said there are opportunities for expansion in work and fitness applications. The recent decision to grant access to the operating system powering Meta’s Quest headsets is expected to fuel growth in the mixed reality ecosystem.
Additionally, the CEO touted Meta’s AR glasses as an ideal platform for AI assistants, leveraging their capacity to provide real-time visual and auditory feedback.
Despite these ambitious plans, Meta’s Reality Labs unit, tasked with developing hardware and software for the metaverse, continues to grapple with significant losses. Despite reporting sales of $440 million for the first quarter, Reality Labs incurred staggering losses of $3.85 billion, bringing cumulative losses since the end of 2020 to over $45 billion.
Zuckerberg’s cost-cutting initiatives have previously buoyed Meta’s stock price, with a nearly threefold increase in 2023 following a tumultuous 2022. Emphasizing operational efficiency and strategic investments in AI, Zuckerberg’s leadership has garnered investor favor, propelling Meta’s stock price to record highs.
For the future, Zuckerberg outlined Meta’s plans to accelerate infrastructure investments to support its AI roadmap, with capital expenditures for 2024 expected to range from $35 billion to $40 billion. Despite the long-term potential of AI, Meta anticipates a multiyear investment cycle before AI products become profitable services.
Susan Li, Meta’s finance chief, echoed Zuckerberg’s sentiments, stressing the importance of developing advanced models and scaling products to generate meaningful revenue. However, Meta’s cautious revenue forecast for the second quarter dampened investor sentiment, leading to further sell-offs.
In conclusion, Zuckerberg urged investors to tag along as investing in Meta’s AI-driven initiatives offers long-term benefits.
“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,” Zuckerberg said. “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.”
Li echoed Zuckerberg’s sentiment, telling investors, “While there is tremendous long-term potential, we’re just much earlier on the return curve.”