Facebook owner’s increased spending projections cause Meta shares to lose $125bn

Shares in Meta, the parent company of popular social media platforms Facebook, WhatsApp, and Instagram, experienced a significant drop in after-hours trading in New York on Wednesday. The decline was sparked by the company’s announcement that it had revised its cost forecast for the current year.

According to Meta’s first-quarter results, the company expects to incur additional expenses to fund new artificial intelligence (AI) products and the infrastructure behind them. This news caused investors to send the stock down by 10%.

Founded and led by Mark Zuckerberg, Meta now projects a capital expenditure of $35 billion to $40 billion for 2024, up from its previous estimate of $30 billion to $37 billion. Additionally, the company has raised its total expenses forecast to $96 billion to $99 billion, an increase of $2 billion in the low-range mark.

While these changes may not seem significant, they have reignited concerns among investors about Zuckerberg’s past risky technology investments. Meta has been implementing AI tools and introducing new features, such as a chat assistant, to drive engagement on its social media platforms and boost advertising revenue.

Despite the stock’s decline, Meta’s key financial metrics still exceeded market expectations, according to data from the London Stock Exchange Group (LSEG). The company reported a 27% increase in total revenue to $36.5 billion and expects a slight improvement in the current March-June quarter. However, its low-range revenue projection fell below market forecasts, contributing to the share price sell-off.

Analysts attribute the 10% drop in stock value to a loss of $125 billion (£100.3 billion) in market value, as the share values continued to fluctuate. Despite this, the stock remains up by 30% since the beginning of the year.

One factor that may have contributed to Meta’s solid financial performance is the uncertainty surrounding digital advertising in the current political landscape. With over 50 countries holding elections this year, marketers tend to reduce their digital spending, making Meta’s success even more impressive.

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, commented on the reaction to Meta’s revised cost forecast, saying, “Meta’s substantial investment in AI has the potential to greatly improve engagement on its platforms and increase the value of ad space for marketers. The company has exceeded expectations in a time of uncertainty in the digital advertising industry.”

Lund-Yates continued, “Meta’s enormous scale and importance to modern-day marketers may also be boosted by the uncertainty surrounding the future of TikTok in the US. It’s possible that Meta may acquire TikTok in the midst of all this turmoil.”

However, Lund-Yates emphasized the importance of Meta not losing sight of its core business – advertising. She stated, “While Meta’s plans for AI are bold, the company must continue to focus on its core advertising activities. This doesn’t mean neglecting AI, but rather spending strategically and aligning with a clear strategic vision.”

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