Meta Platforms warned that its advertising business depends heavily on the macroeconomic environment for spending, sending its shares lower after an upbeat earnings report.
“We are very vulnerable to fluctuations in the macro environment,” Chief Financial Officer Susan Lee said on a conference call with investors. “Income prospects are uncertain” in 2024.
Shares fell about 3% in after-hours trading.
Meta appears to have recovered from its advertising woes that began last year. The company said Wednesday that third-quarter sales were $34.2 billion, compared with analysts’ average estimate of $33.5 billion.
Earlier this year, the company laid off thousands of employees and cut a slew of programs, while putting more emphasis on using artificial intelligence to improve its ads and algorithms. Chief Executive Mark Zuckerberg has renamed the company the Metaverse, or virtual reality world, but it’s not being discussed much, especially among skeptical investors. before.
Meta’s core advertising business has returned to growth. Meta has been rolling out short videos on Instagram and Facebook, which it calls Reels. While this helps increase the time users spend scrolling through the app, it will take some time for Meta’s advertisers to adapt to the new format.
Meanwhile, investors have been keeping a close eye on Meta’s spending on projects such as virtual reality and artificial intelligence technology. The tech giant on Wednesday lowered its 2023 spending forecast to a range of $87 billion to $89 billion.
Cost reductions helped operating margins expand to 40% from 20% in the same period last year. Meta reported third-quarter earnings per share of $4.39, compared with $1.64 in the same period last year.
Meta expects spending to rise to $94 billion to $99 billion in 2024. According to the company’s statement, the majority of the funds will be used to continue expanding the technology infrastructure to run complex artificial intelligence and virtual reality tools and hire more workers in “higher-cost technical roles” to build these products.
Meta is approaching the artificial intelligence race differently than its big tech peers. For the most part, it is making research or large-scale language models — the technology that underpins artificial intelligence chatbots — free for developers to use. Meta believes this open strategy will help improve the technology faster.
At its developer conference in September, the company unveiled its first consumer-facing generative AI capabilities, including a variety of chatbots and image editing tools for platforms like Instagram and Facebook.
At the event, Zuckerberg also expanded his ongoing commitment to the virtual world—a completely virtual world—to include augmented reality, where computer-generated imagery overlays the real world. The company also announced an updated version of its smart glasses developed in partnership with sunglasses maker Ray-Ban, as well as a new VR headset, the Quest 3.
Meta said in a report Wednesday that Reality Labs, the unit that makes smart glasses and headphones, posted an operating loss of $3.7 billion on revenue of $210 million. Analysts had expected average revenue of $313.4 million and an operating loss of $3.94 billion.
In the final month of the quarter, Meta’s overall monthly user base grew 7% to 3.14 billion, while analysts expected 3.05 billion.
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