Meta Platforms raises money for more AI, share price falls

Mark Zuckerberg lightly mentions that it has been a good start to the year. His Meta Platforms group increased its operating income by 27 percent in the first quarter (to 36.5 billion US dollars) and exceeded its forecast. At the same time, operating expenses rose by only six percent, not the least thanks to waves of layoffs at Meta. As a result, operating profit almost doubled (+91% to 13.8 billion dollars). Nevertheless, the share price crashed. Zuckerberg has other problems: Where to put so much money? Of course, he is increasing investment in artificial intelligence (AI).

Zuckerberg stated in the conference call with financial analysts that they were investing aggressively to support their ambitious AI research and product development efforts following the publication of Meta's quarterly figures on Wednesday evening. AI needs a lot of computing power, which means powerful computers, so Meta is increasing its investment spending. This year, Zuckerberg wants to invest 35 to 40 billion dollars in longer-term assets, next year it will probably be even more.

As before, Meta Platforms lives almost exclusively from advertising. Just two percent of quarterly revenue comes from other sources. The operating cash flow for the first quarter rose by a good 37 percent to 19.2 billion dollars. And because Meta's effective tax rate fell from 22 to 13 percentage points compared to the same quarter last year, net profit more than doubled year-on-year to 21.4 billion dollars (+117%).

Shares fall low

Despite all this, Meta shares fell by over 16% in after-hours trading. All the usual key figures are clearly in the green: in March, at least 3.24 billion people (DAU) used Meta products every day (+7%). They are also not deterred by the fact that Meta is presenting them with more and more advertising (+20%). Despite the increased flood of advertising, Meta has managed to raise the average price by six percent.

The reason for the fall in the share price could be that institutional investors are not happy with the outlook for the current second quarter. Meta expects sales of 36.5 to 39 billion dollars – that would also be at least 27 percent more than in the same quarter of the previous year, although the US dollar has since appreciated. As Meta reports in dollars, a strong dollar reduces foreign revenues in accounting terms. However, the financial institutions may have expected even more growth.

They are also likely to be displeased that Zuckerberg is also increasing investment in mixed reality, data glasses and the like. This does not fit in with the "Year of Efficiency" that Zuckerberg proclaimed in February last year. This is because the department for the eponymous metaverse, Reality Labs, continues to operate at a loss. In the first three months, it posted an operating loss of 3.8 billion dollars (-4%) on a turnover of only 440 million dollars (+30%). Investors who do not believe in the success of the Metaverse, or who are planning for the short term, are certainly not impressed by additional investments in this area.

The fall in the share price is also partly a sign of profit-taking. Up to the after-hours sell-off on Wednesday evening, meta shares had gained 138 percent in one year and 43 percent since the beginning of the year. Anyone who bought before February will remain in the black, even if the after-hours slide is confirmed in regular trading on Thursday.

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