Meta Shares, the owner of Facebook and Instagram, are down over 16% before the US markets open despite very strong first-quarter results that exceeded analysts’ expectations. Investors are disheartened by poorer forecasts for the second quarter and the announcement of a longer wait for profits from the implementation of artificial intelligence, especially as TikTok, Instagram’s main competitor, faces significant challenges in the USA.
This week is the most critical in the period for publishing first-quarter results of American companies. Four companies from the group of most important tech companies, known as the “Magnificent 7”, are releasing their results. We have already seen the results from Tesla and Meta, while Microsoft and Alphabet are set to publish on Thursday. Amazon and Apple will follow next week, with Nvidia presenting its results on May 22.
Investors are closely monitoring the results of the major tech companies, as these companies have largely driven the current market rally. The Magnificent 7 account for 29% of the market capitalization of the S&P 500, and it was estimated that in this quarter these companies would increase their profits by 37% while the remaining 493 companies in the S&P 500 index would see a profit decline of about 3%.
Therefore, it is not surprising that reactions to company results are volatile. Meta published its results on Wednesday, beating analysts’ expectations. Earnings per share (EPS) were $4.71 compared to the expected $4.30, and revenue was $36.46 billion against a forecast of $36.12 billion. However, disappointing forecasts for the second quarter have led to the company’s shares currently falling more than 16% in after-hours trading. The company expects operating costs to rise in 2024 due to ongoing high inflation. Investors are particularly focused on topics related to artificial intelligence. The company is working on an AI model called Llama 3, an intelligent assistant soon to be introduced and used in company products like chatbots in Messenger and Instagram, among other solutions. However, investors are now expecting not just solutions but also prospects for their monetization. In this context, investors paid close attention to Mark Zuckerberg’s words during the earnings call, where he mentioned that the moment AI solutions start generating significant revenue could still be far off. This likely also contributed negatively to the stock’s performance.
The drop in Meta’s stock price must be viewed in the context of the company’s recent stock gains. Since the beginning of the year, the stock price has risen by 42%, and over the last 12 months by 138%, outperforming its main rival, Google. The rises were mainly due to very good results in the online advertising market. The company also announced a dividend payout and a buyback of its own shares. Another opportunity for the company may be the US Congress’s voted mandate, signed by President Biden, requiring the sale of the company owning TikTok. Instagram remains the main competitor to the Chinese platform.
Paweł Majtkowski, eToro analyst in Poland
