Meta Platforms jumps 6% on earnings beat, advertising resilience
Meta CEO Mark Zuckerberg appears at the Meta Connect event in Menlo Park, California, on Sept. 25, 2024.
David Paul Morris | Bloomberg | Getty Images
Meta Platforms shares jumped more than 6% Thursday after the company topped earnings expectations and showed advertising resilience in a murky macroeconomic environment.
“Key here is that Meta’s adv. demand trends appear to be relatively healthy and while we’re watching for any impacts from macro and lower spend from China-based advertisers given the de minimis change, Meta’s scale of users and advertisers + focus on newer products are offsetting some macro challenges,” wrote Citi’s Ronald Josey.
First-quarter revenues grew 16% from a year ago to $42.31 billion and topped a $41.10 billion estimate from LSEG. Earnings came in at $6.43 per share, versus the $5.28 per share expectation. Net income reached $16.64 billion, jumping 35% from $12.37 billion in the year-ago quarter.
The company also issued in-line guidance for the current period. Meta’s finance chief Susan Li said the company expects sales to range between $42.5 billion and $45.5 billion. Analysts polled by LSEG had forecast $44.03 billion in revenues.
“Our business is also performing very well, and I think we’re well positioned to navigate the macroeconomic uncertainty,” Meta CEO Mark Zuckerberg reassured analysts on an earnings call Wednesday.
Investors this earnings season are watching for signs that President Donald Trump‘s tariff blit hampering advertising demand — where many technology businesses make up a sizeable chunk of revenues. Snap and Google have already warned of potential headwinds to their ad businesses.
Advertising revenue for the first quarter came in at $41.39 billion, topping a forecast of $40.44 billion from Wall Street. But Li told analysts that Meta has “seen some reduced spend in the U.S. from Asia-based e-commerce exporters,” which may stem from the ending of the de minimis trade loophole on Friday.
“The digital ad market is likely to get a bit jittery over coming months, but META’s performance orientation and significant AI ad investments should mean continued relative share gains against the field,” wrote Barclays analyst Ross Sandler.
Meta also upped its capital expenditures range to $64 billion to $72 billion from $60 billion to $65 billion to reflect more data center investments in artificial intelligence and a potential uptick in infrastructure hardware costs as trade uncertainty continues.
Bernstein’s Mark Shmulik called the hike in spending a “bold strategy” against an uncertain macroeconomic backdrop, but called Meta the “safest and most exciting dodgeball team around.”
“We continue to believe that Meta is well positioned for a tougher macro environment given its scaled advertiser base, highly performant platform, & vertical agnostic inventory,” wrote JPMorgan’s Doug Anmuth.
WATCH: Meta is showing tangible examples of AI investment, says Deepwater’s Gene Munster
Technology
Blip, dip, pullback or the beginning of the end? Global investors weigh in on stock sell-off
Global investor sentiment for artificial intelligence remains buoyant, despite on the ongoing stock sell-off.
European and Asia markets have seen days of consecutive losses, tracking their U.S. counterparts lower as pressures mount on AI-related stocks and their valuations. The pan-European Stoxx 600 on Tuesday notched its lowest level in a month, with major bourses opening mixed on Wednesday, while Asia-Pacific markets fell.
Stateside, stock futures were little changed overnight after major U.S. indexes extended their losses. AI-related stocks such as Nvidia, Palantir, and Microsoft are among those feeling the pressure.
“We do think this is an AI specific pullback. We don’t think this is the beginning of the bear market,” Emma Wall, head of investment analysis at Hargreaves Lansdown, told CNBC’s “Squawk Box Europe.”
When considering whether this is the “beginning of the end” or a moment marking “the big pullback,” Wall argued that while we are overdue a “major global market correction,” the current downturn is yet to bring this shift.
Many markets outside of the U.S. — particularly in Europe and the U.K. — already reflect much of the negative news, she said, adding that she sees the pressure as sector specific.
It is, however, an opportunity to rebalance portfolios, as “even taking into consideration this week, most people have had a really good run, even in AI stocks,” Wall said.
Mike Wilson, chief U.S. equity strategist and chief investment officer at Morgan Stanley, echoed this sentiment. He said markets have been in a correction for the past six weeks but “it’s not the end of the AI cycle.”
All eyes are on Nvidia, considered the bellwether of AI, as it’s due to post third-quarter earnings after the closing bell on Wednesday.
“Whatever happens tonight is, if it is a blip, is a pullback, it’s probably a dip to be bought. But I think we are in the midst of somewhat of a correction right now,” Wilson told CNBC’s “Inside India,” adding that he thinks it’s the middle-inning.
“The credit part of this spending is just beginning, meaning we’re just starting to raise money in the credit markets. It’s not like that money is going to sit there and they’re not going to spend it, which means there’s probably time on the clock with these intermittent kind of pullbacks,” he added.
Companies and investors are engaged in a delicate dance.
On one side, AI labs and their partners are making big promises and aggressive plays, according to Jason Thomas, head of global research and investment strategy at Carlyle. “But it’s not incumbent upon investors to believe them,” he told CNBC’s Julianna Tatelbaum, from the firm’s annual conference.
“Investors, of course, have to ensure that they are getting compensated for the risk that things don’t work out quite as planned, and I think that there’s a sense that perhaps there’s been some assets in the space that have been priced to best case scenarios. So I think that that’s the reassessment that’s going on right now,” he said.
Hyperscalers’ rising capex
The sell-off comes as the pace of debt dealmaking picks up, fueling speculation that it may have unsettled investors, many of whom have remained bullish on AI as long as companies post sound earnings. Google-owner Alphabet and Meta have issued bonds, for example.
“It’s not a problem, as long as the funding markets are there, meaning they’re raising the debt,” Wilson added. “I mean, there’s investors lined up,” he said.
It does however, become a problem when this is no longer the case, but “we haven’t seen that yet,” he said.
AI has fundamentally changed the strategy for many Big Tech firms, particularly when it comes to U.S. hyperscalers, which have morphed into capex-heavy companies from once asset-light businesses. Global investors are now assessing this new dynamic. Bank of America‘s latest Global Fund Managers Survey found that, for the first time in two decades, fund managers are concerned about hyperscalers “overinvesting.“
“[Hyperscalers] traded at very high price-to-book ratios, which made a lot of sense. You don’t value a money-printing machine based on the cost of the paper or based on the cost of the printing press. And that’s essentially what they were, these massive money printing machines where most of their assets were intangible, proprietary technology, the digital platforms,” said Carlyle’s Thomas.
“Now they’ve actually started to invest so much that 70% of their cash flow is being consumed by capital spending and, if you look at their book value now, 70% actually consists of property, plant and equipment, largely data centers. That’s a four-fold increase from a decade ago,” he added.
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