Meta Platforms Earnings: META sinks 10% on lower Q2 revenue guidance


  • Meta Platforms raised its capex guidance for 2024.
  • META stock sinks 10% following the earnings release afterhours.
  • Zuckerberg is focused on artficial intelligence developments.
  • NASDAQ, S&P 500 traded flat to down for much of Wednesday regular session.

 

This must be "opposites" week. While Doppelganger Tesla (TSLA) rode horrible misses on Tuesday to a double-digit rally, Meta Platforms (META), the parent company of Facebook, Instagram and Whatsapp and the Oculus, produced impressive beats above Wall Street consensus after the close on Wednesday, only to watch the share price collapse by nearly 10%.

The market instead ignored Meta's successful quarter in favor of negativity surrounding the firm's Q2 sales guidance. Management said that it expected Q2 revenue in a range with a midpoint at $37.75 billion, while Wall Street's consensus had been calling for $38.3 billion. Additionally, the company expected higher legal and infrastructure costs for the full year.

Meta shed a little more than 1% heading into its earnings call on Wednesday. Stock markets were flat to mixed overall on the day.

Meta Platforms stock news

In the 18-odd months since META stock reached a floor near $88 in November 2022, the social media megalith has rallied by more than $1.08 trillion. That’s a 450% gain, owing to CEO Mark Zuckerberg’s pivot away from the metaverse toward the Reels short video app. 

But that long rally may have come to an end with the Q1 release. If anything, the market seemed annoyed that Meta raised its capex guidance from the wide $30 to $37 billion range it had supplied earlier to between $35 to $40 billion. Zuckerberg and company did not supply an outlook for 2025 capex but told investors to expect it to increase. 

As one of the largest capex companies in the S&P 500, Meta supplied 3%, or $27 billion, of total capex among that index's companies in 2023.

"The new version of Meta AI with Llama 3 is another step toward building the world's leading AI," Zuckerberg said in the earnings statement. "We're seeing healthy growth across our apps, and we continue making steady progress building the metaverse as well."

The first quarter of 2024 was yet another capable performance by the main player in social media. Meta printed GAAP earnings per share (EPS) of $4.71, which beat Wall Street's consensus by 39 cents.

Revenue of $36.46 billion also surpassed the Street's expectation by nearly a quarter billion. Sales shot up more than 27% from a year ago.

Advertisement impressions increased by 20% from a year earlier, while the average price per ad rose 6% over that time period.

Daily active users across its Family of Apps rose 7% from a year ago to 3.24 billion.
 

AI stocks FAQs

First and foremost, artificial intelligence is an academic discipline that seeks to recreate the cognitive functions, logical understanding, perceptions and pattern recognition of humans in machines. Often abbreviated as AI, artificial intelligence has a number of sub-fields including artificial neural networks, machine learning or predictive analytics, symbolic reasoning, deep learning, natural language processing, speech recognition, image recognition and expert systems. The end goal of the entire field is the creation of artificial general intelligence or AGI. This means producing a machine that can solve arbitrary problems that it has not been trained to solve.

There are a number of different use cases for artificial intelligence. The most well-known of them are generative AI platforms that use training on large language models (LLMs) to answer text-based queries. These include ChatGPT and Google’s Bard platform. Midjourney is a program that generates original images based on user-created text. Other forms of AI utilize probabilistic techniques to determine a quality or perception of an entity, like Upstart’s lending platform, which uses an AI-enhanced credit rating system to determine credit worthiness of applicants by scouring the internet for data related to their career, wealth profile and relationships. Other types of AI use large databases from scientific studies to generate new ideas for possible pharmaceuticals to be tested in laboratories. YouTube, Spotify, Facebook and other content aggregators use AI applications to suggest personalized content to users by collecting and organizing data on their viewing habits.

Nvidia (NVDA) is a semiconductor company that builds both the AI-focused computer chips and some of the platforms that AI engineers use to build their applications. Many proponents view Nvidia as the pick-and-shovel play for the AI revolution since it builds the tools needed to carry out further applications of artificial intelligence. Palantir Technologies (PLTR) is a “big data” analytics company. It has large contracts with the US intelligence community, which uses its Gotham platform to sift through data and determine intelligence leads and inform on pattern recognition. Its Foundry product is used by major corporations to track employee and customer data for use in predictive analytics and discovering anomalies. Microsoft (MSFT) has a large stake in ChatGPT creator OpenAI, the latter of which has not gone public. Microsoft has integrated OpenAI’s technology with its Bing search engine.

Following the introduction of ChatGPT to the general public in late 2022, many stocks associated with AI began to rally. Nvidia for instance advanced well over 200% in the six months following the release. Immediately, pundits on Wall Street began to wonder whether the market was being consumed by another tech bubble. Famous investor Stanley Druckenmiller, who has held major investments in both Palantir and Nvidia, said that bubbles never last just six months. He said that if the excitement over AI did become a bubble, then the extreme valuations would last at least two and a half years or long like the DotCom bubble in the late 1990s. At the midpoint of 2023, the best guess is that the market is not in a bubble, at least for now. Yes, Nvidia traded at 27 times forward sales at that time, but analysts were predicting extremely high revenue growth for years to come. At the height of the DotCom bubble, the NASDAQ 100 traded for 60 times earnings, but in mid-2023 the index traded at 25 times earnings.

Meta Platforms stock forecast

The primary bull target heading into earnings was the 161.8% Fibonacci level at $545. Above there sits the 261.8% Fibo at $584 as well. The Relative Strength Index (RSI) has been trending below the 50 threshold in the past few weeks, which tells us that momentum was declining heading into earnings. However, much of that decline may be attributed to the Israel-Iran hostilities and sticky inflation reports rather than META's intrinsic value.

The daily chart below shows that support sits in three places. First, there's the 50-day Simple Moving Average (SMA) at $495, a level that Meta Platforms has been lately trading below. Then there's the 100-day SMA near $434. Below there, the $400 level comes into view, which is near where META was trading before it announced Q4 earnings back in February.

META daily stock chart

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