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We're watching shares of matap platforms down ten percent after the company reported revenue that came in above estimates thirty six point four to six billion versus estimates of thirty six point one two billion. The concern, it looks like Carol, that investors have is all about that guidance. Second quarter revenue expected to come between thirty six point five and thirty nine billion, whereas estimates were for thirty eight point two four billion dollars. This is essentially the second quarter
sales forecast lagging at least at the midpoint. But we're seeing a kind of an outsize reaction in the after hours.
Yeah, it's kind of interesting. We're going to need some you know, kind of color around these numbers and also this you know, increase in expenses potentially and spending. Let's get to it with our Bloomberg News contributor John Erlickman, who follows the tech sector and has for a long time. John joining us from Toronto. John, the stock is sinking in the aftermarket. I mean, it's had quite a run
here in twenty twenty four. But again, shares of Meta down about ten percent, what jumps out for you and why do you think maybe investors are so disappointed? Is it all about that outlook?
I think Carol, at the end of the day, you and Tim have outlined all the considerations that are playing into the stock decline. Let's certainly wait for some details on the conference call later on how the AI roadmap is playing out. But I think the context here is very important. So you were talking about the run up in the stock last year and the continued rally this year.
It's easily outpacing all the digital ad players because not only did they prove to Wall Street that they can deliver we saw that in the previous quarter, but also that they have been seen as one of the earliest big winners in big tech around AI. You could argue it's Microsoft and Meta that have shown the strongest ability to implement implement generative AI, work it into the system.
So Tim was first to talk about the revenue number for the current quarter possibly ending up being a little light versus expectations, although in theory, based on the guidance they're giving us, it could be a little bit stronger. You highlighted the expenses. I think the fact that they are communicating around those expenses being impacted by their AI push.
That's going to have to be a decision that investors make, because when this stock lost basically two thirds of its value in twenty twenty two, people were concerned about spending on the metaverse with an unclear roadmap. Most of Wall Street these days thinks that it is worthwhile to spend on AI, and heck, they know how much those Nvidia GPUs cost, so there seems to be a willingness to spend if it will mean bigger returns. You did see
the revenue number for the current quarter pretty strong. This is the strongest growth we've seen from them in three years time. So I think we're going to have to let the math fall. The simplest part of this story is that expectations were high. The stock had rallied a lot, completely different story than Tesla yesterday. And let's see if they give us more details on the AI.
Yeah.
I think you bring up a really good point about the stock being up close to forty percent so far this year, expectations being high, just with the run up that we had last year too. I do want to bring in also, Man Deep saying Bloomberg Intelligence senior tech industry analysts whose just now looking at the numbers as well. Man deep the stock down about nine point six percent right now. You set up the call in the print in a great way for us earlier on the program. Your reaction to the numbers.
The focus is more on the spending and the guide and the fact that they raised the capex guide by more than ten percent. I mean, investors are very fearful. Whenever this company talks about spending more, I think the alarm bells started ringing.
I heard that somewhere you got to spend money to make money.
Well, so I think in their case, the fact that they go so big and you know, in the past they haven't cared about what investors think, and it can be kind of a difficult scenario for people to imagine if the growth were to slow down and they're talking about raising capex, raising op x. Is it twenty twenty two all over again? And that seems to be the react.
AD impressions up twenty percent in the quarter compared with the same period last year. The average price the platform is able to charge per AD is also up six percent or Alex Barinka weighing in on this, you know this gets to the point with what we talked about earlier, Like I get it. Everybody is excited about AI. You seem to say that in terms of ad targeting, it
makes sense in terms of what they're doing. So for you who understands this company like no other, like the spend makes sense or again it's mandeep a little bit of a balance here.
If they had said, Okay, if we are raising our capex and we expect to monetize Lama three, our latest model, in this way, then I think it would have been a lot more palatable. Right now, the guidance is more about we are raising our capex, we are raising our opics, and there isn't anything. Maybe we learned that on the call.
What's the question you would ask.
How do you plan to monetize generative AI beyond the ad targeting? Everyone can see the proof in the ad pricing numbers and this quarter was great, but how do you go beyond monetizing Jenny I separately, because Meta does have an engagement problem. As I was alluding to before, The blue app is losing engagement, so you somehow need to offset that somewhere else beyond the TikTok band hope that everyone thinks he is going to benefit that.
John Relick, when I see you nodding here when Mandeep is talking about Meta's engagement problem, I mean, I don't know about you, but at least when it comes to the reels function, the TikTok clone in Instagram, I mean, sometimes I sit down with that thing and you know, suddenly I look up in twenty minutes have passed and I'm like, how did I just waste twenty minutes of my life with this?
That happens to pull yourself out. Pull yourself out, Tim
if you can't look. Mandeep has done some of the best work on implementing AI so far, and I think, actually we'll have a better conversation once Alphabet reports its results, because it was Mandy who said to me, if they can prove that their search business is not being impacted by all this talk about, you know, chat bots that courage people to spend more time on the Facebook platforms, on the Meta platforms, well, then maybe Meta will feel that they have to appease Wall Street in a bigger way.
You were talking earlier about Mark Zuckerberg and the T shirt in the necklace. I was just thinking back to Mark Zuckerberg, you know, giving the suit and tie approach to Wall Street when the last quarter it was all about cost controls, issuing a dividend, focusing on stock buybacks. Historically that has not been the Mark Zuckerberg. We know
this is. I mean, it's remarkable that these are even public companies sometimes when you think about how hungry all these tech entrepreneurs are to get the right the next story right. So I think that yes, I would agree with man Deep, let us know more on the profit and lost story around your AI initiatives. But I think for Mark Zuckerberg, when the table stakes seems so high to all these players in Silicon Valley right now, he's probably made a new chess move to say we won
over Wall Street. Now we got to win the battle on the AI front.
And I would just have one more thing. If they really wanted to fund the GENI initiatives, they could have said we are curtailing a reality lab spend. In the print, it's very obvious he wants to keep spending on reality labs. There is no pullback on that front.
So the CFO, Susan, why is it I forget right? Susan, whne am I saying it correctly in the statement talking about the metaverse business reality labs. For reality labs, we continue to expect operating losses to increase meaningfully year over year due to our ongoing product development efforts and our investments to further scale our ecosystem. So Mandy, they're not scaling back.
They're not and they want to increase spending on AI, which I think investors wouldn't mind given the state of generative AI. But you have to see that discipline that they have shown in the last eighteen months continue Why go back to that twenty twenty two phase where you know, everyone.
Question we learned how well that worked?
Right? Well?
John, I mean there's a difference between investing in AI for ad tech and investing in AI for engagement on the traditional family of platforms, that family of apps. And there's a difference in spending billions of dollars. And I think many investors over the last couple of years would argue blowing billions of dollars on headsets and trying to create a new type of computing platform.
Very true, very true. But I would say that if Mark Zuckerberg has already been very willing to make comments on Apple's VR and AR initiatives, and Apple is now a story where we're looking for more details on their AI strategy. We just don't know where we're going. We don't know what form factor will be the dominant one in a decade. We don't know exactly what AI strategy
will be the most successful one. And I think to the Reality Labs reality it's that if you don't know, and you have the capital that you can commit to these things, and you're willing to take, you know, a slap on the wrist from from Wall Street so that you can keep going down both of these paths, because arguably Apple is as well making fresh hardware bets and
AI bets. I think it just speaks to the fact this is a very exciting time after a lot of predictability in Silicon Valley for the last decade.
What's interesting is and we're continuing to see Meta down about ten percent eleven percent in the after hours. Pinterest is also down about six percent in the after hours. We're watching some a two undred fifty billion dollar dollar exchange traded funny TAF tracking. The NAIs doc got hit in late hours following Meta too so we're seeing it kind of dragged down the sector MENTEP. If Meta was not up almost forty percent this year, would would maybe Wall Street be a little bit more patient.
I think so, And to an extent, you know, it is tied to the fact that stock had done really well. But at the same time, I think if they are not in raised the capex and the opics view and probably not said that they will keep spending on reality laps, you wouldn't have seen such a reaction that this is more about investors really panicking around Meta, going back to you know, they're.
Always MINDI is the panic warranted.
Look, I think with the kind of churn you have seen with Meta shareholder base. I mean, remember when they had the eighty percent draw down, a lot of the lot people shareholders just left, They gave up.
And I thought this was a twenty year turnaround story.
And now they have new shareholders, which who may not have that kind of patience, you know, in terms of that long term strategy. So you want to be very careful in terms of setting expectations. I think last quarter they did the right thing by announcing a buyback, by announcing a dividend. Yeah, and they haven't really talked about capital allocation much in this release, which is what investors wanted to say.
That's a really good point. The other thing I want to say, and John, let's bring you back into this. Looking at our live blog, Alex Barinka noting that the total number of people using Meta's apps, so we're talking Facebook, Instagram, Whatsappen, threads, rising seven percent year overy year to three point twenty four billion. I mean, again, when we think about social media, these guys really kind of just.
There's Meta and there's everyone else exactly.
And so as you know, men Deep was talking earlier like, if you're going to do an ad spend, this is kind of probably where you're going to go because this is where you get the payoff. But I mean there's value in that. I mean just putting aside the AD spend and stuff that the AdSpend, the marketing spend, the CAPEC spend, if you will, I mean that is incredible.
Yeah, and I think we have had to relearn how to evaluate these companies. Meta doesn't get as specific with individual platform numbers as they used to. Apple doesn't tell us about the number of iPhones they're selling quarter to quarter. Netflix just told us they're not going to tell us how many subscribers they have in the future, right, which means we're talking now about the power of the platform,
and you are appssolutely right, Carol. The advertising ecosystem around the meta properties is extremely robust, and they have proven to us that that is hard to break. I do have to go back to what Tim said, though, I'm still always curious about where the trends are taking us. It's been a busy day on the TikTok front as well.
Without a doubt, if you're Mark Zuckerberg, you are concerned about the levels of engagement just in the pure traditional social media way of having the hot hand and Instagram is getting a bit older. Facebook certainly is already there, but breaking that model that they've built is hard to do. And maybe that's, you know, if you've got some competition
on other social media platforms. Maybe that explains to what Mandy was talking about earlier, why you need to continue to put all that money into the metaverse in reality labs part while you're also spending on AI to make a more robust platform for your traditional social media channels.
Aman Deef, I want to give you the last word here as you go and get ready to write your reports.
The headline on that report.
Reports reports plural later today. I know it's going to be a late night for you. What are you thinking.
Cost discipline going away from meta question mark because you know, to me, there's no doubt this company has a scale and it's a juggernaut when it comes to digital ads. It's just kind of setting the right expectations and sticking to that. And we know Mark Zuckerberg can change and he can execute like no one else. It's a very nimble product team. But when it comes to managing investory expectations,
it's a different ballgame. And they've shown they can be loosed when it comes to the capital allocation side.
Gosh, I'm just telling you. You're on the live blog.
Right, Yeah? Did you do that?
That's amazing. It sounds like they're taken from our conversation for the live blog. Everyone check out the live blog.
Sounds like Zuckerberg needs to put a suit back on and take off the rancher coat and silver.
I mean it's maybe well. Shares down now, Shares down now twelve points seventy percent and up in going into the print close to forty percent.
Yeah, so pretty much at its lows. Guys, thank you so much, Ben Deep saying we always appreciate it, senior tech industrial analysts at Bloomberg Intelligence, and our thanks to John Erlichman as well. Always great in terms of his insights on this group. He's been following it for a long time. Bloomberg News contributor out There in Toronto shares a Meta down almost thirteen percent.