Facebook parent Meta (META) reported strong third-quarter results on Wednesday, surpassing Wall Street’s expectations for earnings and revenue. However, the company’s stock fell over 3% in after-hours trading as investors reacted to its forecasted increase in capital expenditures through 2025, which could impact profitability amid high growth expectations.
Solid Q3 Performance, Yet Stock Reacts to Spending Forecasts
For the third quarter, Meta posted earnings per share (EPS) of $6.03 on revenue of $40.5 billion, beating analyst predictions of $5.25 EPS and $40.2 billion in revenue. This marked a notable improvement from last year’s Q3 results, when Meta reported $4.50 EPS on $34.1 billion in revenue.
Advertising revenue, the company’s primary income source, hit $39.8 billion, slightly above expectations of $39.7 billion. However, Reality Labs, Meta’s augmented reality (AR) segment responsible for products like the Quest headsets, brought in $270 million in revenue, falling short of the $312 million forecast. The segment reported a loss of $4.4 billion, though this was narrower than the anticipated $4.6 billion loss.
Despite these positive figures, Meta’s stock declined due to its projected spending increase. “We anticipate our full-year 2024 capital expenditures will be in the range of $38-40 billion,” said CFO Susan Li, with substantial further increases in infrastructure spending expected in 2025. Meta’s Q3 report detailed $9.2 billion in capital expenditures, highlighting the company’s significant investments in AI and AR development.
Meta’s Expansion in AI and AR
Meta is rapidly emerging as a major player in artificial intelligence, ranking among tech leaders such as Microsoft, Google, and Amazon. The company’s AI strategy focuses on its Llama model family, used in both consumer applications and advertising products. This strategy also includes providing Llama as an open-source tool, enabling companies like Accenture, DoorDash, and Goldman Sachs to develop their own AI solutions.
Additionally, Meta’s plans for a new AI-powered search feature would allow users to ask questions about current events without relying on search engines like Google or Microsoft Bing. This move could enhance Meta’s user engagement by integrating direct, in-platform search capabilities.
On the hardware side, Meta is expanding its AR portfolio with several high-profile products. Following the successful debut of its Quest 3S entry-level AR headset, Meta recently showcased a prototype of its Orion AR glasses. Still in early development, Orion aims to enable users to interact via holographic projections in real-world environments. Meta is also seeing growing interest in its Ray-Ban Meta smart glasses, a product designed to make AR more accessible to mainstream consumers.
Challenges Ahead: Heavy Investments and Legal Pressures
Meta’s ambitious plans come at a cost, with the company expected to incur significant infrastructure expenses in the coming years. In addition to rising costs, Meta faces notable legal battles, including a Federal Trade Commission (FTC) antitrust lawsuit alleging monopolistic practices and lawsuits claiming its platforms negatively affect teenagers’ mental health.
Despite these challenges, Meta’s solid Q3 performance and its growing presence in the AI and AR sectors show promising potential. However, as investors digest the projected increase in capital expenditures, Meta’s balance of innovation and cost control will be closely watched in the quarters to come.
