Image Source: Pixabay

META stock fell sharply yesterday despite beating earnings and revenue for the current quarter. That's because its guidance came in below expectations, and AI spending forecasts have investors concerned about near-term results.

Adjusted earnings per share of $4.71 topped the $4.32 expected, as did revenues of $36.46 billion vs. $36.16 billion. Notably, net income benefited from sales and marketing costs falling 16% year-over-year while revenue growth stayed solid.

Looking ahead, second-quarter revenue guidance had a midpoint of $37.75 billion. While that represents 18% YOY growth, it was below the consensus analyst estimate of $38.30 billion.

The sell-off accelerated during the earnings call when CEO Mark Zuckerberg discussed investments in glasses, mixed reality, and other projects that aren’t anticipated to make money for years. He also said investments in Artificial Intelligence (AI) are ramping up, but hedged his statement by saying that once those services reach scale, the company has a strong track record of monetizing them effectively.

Capital expenditure guidance for 2024 was raised from a range of $30 billion to $37 billion to $35 billion to $40 billion, but headcount was down 10% YOY to just over 69,000 people.

Overall, Meta’s core businesses continue to fire on all cylinders. But expectations were very high coming into the print, and it’s often increasingly difficult to meet higher and higher expectations. Also, it seems the market is still not fully comfortable with the trajectory of the company’s long-term investments, which remain loss leaders.

Notably, despite the selloff, Stocktwits community sentiment remained in “extremely bullish” territory this week as investors and traders debated the stock’s future.

META’s move was in stark contrast to what happened after Tesla Inc. (TSLA) reported results, highlighting the importance of expectations going into an earnings release. Even though Tesla’s numbers were bad across the board while Meta’s were good, one stock mooned, and the other got tuned (up). Just another thing that makes this stock market thing we all love so difficult to navigate.

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