Meta Platforms, the parent company of Facebook, Instagram, and WhatsApp, reported stronger-than-expected third-quarter results on Wednesday, posting a net income of $15.7 billion, a 35% increase from the same period last year. Revenues also climbed 19% to $40.6 billion, surpassing analyst expectations.
Despite the financial outperformance, Meta’s share price dipped nearly 3% in after-hours trading. Investor apprehension was fueled by the company’s ambitious plans for continued investment in artificial intelligence (AI) and sustained losses from its augmented and virtual reality division, Reality Labs.
Founder and CEO Mark Zuckerberg emphasized that AI infrastructure would remain a significant investment area. “Our AI investments continue to require serious infrastructure,” Zuckerberg explained during a call with analysts, adding that while the exact budget was still under consideration, the company would maintain substantial funding in this space.
The company has now raised its capital expenditure outlook for 2024 to between $38 billion and $40 billion, up from its previous estimate of $37 billion to $40 billion, with much of the spending earmarked for AI advancements.
Like its fellow tech giants, Meta has intensified its focus on AI, leveraging the technology to diversify revenue streams beyond its core social media business. Over recent months, the company has rolled out AI-powered features, including chatbots across its platforms and enhanced advertising technologies. These initiatives are designed to modernize and optimize ad placements, a crucial revenue source for the company.
Industry analysts offered mixed reactions to Meta’s forward-looking strategy. Jasmine Enberg of Emarketer noted that rising costs remain a concern for investors, especially as the returns on AI investments may not be immediate.
“It’s going to take a longer time to pay off than some had hoped,” she remarked. This concern echoes investor unease from earlier in the year when Meta’s hefty spending raised red flags despite a significant boost in earnings.
However, Meta’s core advertising business continues to perform robustly, alleviating some worries. Debra Aho Williamson of Sonata Insights highlighted the solid revenue growth as a stabilizing factor, suggesting that it reassures investors about Meta’s financial footing amid its ambitious AI expenditures.
“Meta’s solid revenue growth in the quarter will help stave off investor concern about its AI investments,” Williamson said, adding that advancements in AI are already simplifying ad placements across the platforms. Yet, she cautioned that the broader impact of consumer-facing AI developments might not be evident until 2025 or later.
In addition to its AI efforts, Meta is venturing into augmented reality (AR). The company’s recent unveiling of the experimental Orion AR glasses drew favorable reactions, reinforcing confidence that Meta is positioning itself as a frontrunner in AI-integrated wearable technology. While these devices remain experimental, they represent a significant step in Meta’s strategy to integrate AI and AR.
Reality Labs, however, continues to be a financial drag, reporting another substantial loss this quarter. The division’s struggles underscore Meta’s challenges in balancing high-risk, high-reward projects with immediate investor expectations.
