Meta earnings guidance sends shares lower as AI spending worries grow
Meta fell after missing EPS estimates and raising capex guidance, while CNBC’s Investing Club said one-time charges clouded the quarter.
By Maya Okafor · Markets Writer
· 4 min read
Meta Platforms shares fell more than 11% in extended trading Wednesday after the company’s earnings per share missed expectations and its Meta earnings guidance pointed to more AI-related spending than Wall Street expected. For everyday investors, the move shows how sensitive big tech stocks have become to the cost of building artificial intelligence, even when revenue growth is strong.
Meta said second-quarter revenue rose 28% from a year earlier to $60.8 billion, topping the $58.7 billion analyst consensus compiled by LSEG. Adjusted earnings per share fell 13.4% year over year to $6.18, below the $7.22 analysts expected, according to LSEG.
CNBC’s Investing Club said the selloff looked like an overreaction and said Jim Cramer’s Charitable Trust remained long Meta. The Investing Club said it was keeping a 1 rating on the stock, while lowering its price target to $700 from $750 because of weaker sentiment around AI spending and difficult near-term price action.
Why did Meta stock fall after earnings?
The main pressure came from two places: the earnings miss and spending guidance. CNBC’s Investing Club pointed out that Meta’s costs and expenses included a $2.4 billion legal charge and a $1.18 billion severance expense tied to layoffs in May, which it described as one-time costs.
Meta reports under GAAP, or generally accepted accounting principles, the standard U.S. accounting framework. Because of that, the company did not strip out those charges in the way some companies do when they present non-GAAP numbers meant to show ongoing operations.
CNBC’s Investing Club calculated that adding back the $3.58 billion in charges to reported operating income of $18.775 billion would produce adjusted operating income of $22.355 billion. By that calculation, operating income would have beaten expectations and grown more than 9% from the prior year, with an adjusted operating margin of 36.77%.
The bigger investor concern may be capital expenditures, often called capex, which is money a company spends on long-lived assets such as data centers, servers and other infrastructure. Meta kept the high end of its full-year capex outlook at $145 billion, but lifted the low end to $130 billion from $125 billion, moving the midpoint to $137.5 billion from $135 billion. FactSet said analysts expected $134.56 billion.
Meta also raised its full-year total expense forecast to $165 billion to $169 billion from $162 billion to $169 billion, reflecting the legal charge, according to CNBC’s Investing Club. That range was above the $158.5 billion analyst estimate cited by FactSet.
For the current third quarter, Meta forecast revenue of $61 billion to $64 billion. The midpoint of that range was below the $63.15 billion consensus estimate compiled by LSEG.
What Meta said about ads, users and AI
Meta’s advertising business continued to grow in the quarter. The company said the global average price per ad rose 12% from a year earlier, while ad impressions across its family of apps increased 14%. CNBC’s Investing Club said family daily active people missed expectations, though the metric improved sequentially after a small decline in the prior quarter. Family average revenue per person beat analyst expectations.
On the investor call, CEO Mark Zuckerberg said Instagram reached 2 billion daily active users and Threads passed 500 million monthly active users. He also said Facebook has been above 2 billion daily active users “for a while now,” and WhatsApp hit a messaging record during the World Cup final, peaking at 30 million messages sent per second.
Zuckerberg said 9 million small businesses on Meta’s platforms now use at least one of its AI ad creative tools. He also said Meta AI has seen a 60% increase in daily interactions since the company rebuilt the assistant and integrated Muse Spark.
Chief Financial Officer Susan Li said quarterly family of apps other revenue reached $1 billion for the first time and grew 73% year over year, driven mainly by WhatsApp, paid messaging and subscriptions. She said Reality Labs benefited from growth in AI glasses, partly offset by lower Quest headset sales.
On questions about a possible public cloud offering, Zuckerberg said others have offered to rent Meta’s computing capacity at “a meaningful premium” to what Meta paid. He said the company believes selling intelligence could carry higher margins than selling compute directly, while also acknowledging an opportunity in compute.
This story draws on original reporting from CNBC.
