Mark Zuckerberg’s Focus on Meta’s Financial Drain Leads to $200 Billion Devaluation

Important Points:

– During Meta’s quarterly earnings call on Wednesday, investors were unnerved by CEO   Mark Zuckerberg’s emphasis on the company’s long-term investments in artificial intelligence and the metaverse.
– Meta’s stock fell as much as 19% during Wednesday’s extended session.
– “We’ve historically seen a lot of volatility in our stock during this phase of our product playbook,” Zuckerberg stated.

Mark Zuckerberg discussed artificial intelligence at the beginning of Meta’s earnings call. He then discussed the metaverse while promoting the operating system, headsets, and glasses made by his business. His introductory remarks were almost entirely devoted to listing the various ways that Meta loses money.

It didn’t appeal to investors. In prolonged trading on Wednesday, Meta shares fell as much as 19%, wiping off a market capitalization of over $200 billion. Despite Meta posting higher-than-expected first-quarter revenue and profit, the decline occurred.

Zuckerberg seems primed for the takeover.

“I think it’s worth calling that out, that we’ve historically seen a lot of volatility in our stock during this phase of our product playbook where we’re investing in scaling a new product but aren’t yet monetizing it,” Zuckerberg stated. He mentioned earlier initiatives including the switch to mobile and the short-video offering Reels and Stories.

Digital advertising makes up 98% of Meta’s revenue. When Zuckerberg did speak about advertisements, though, it was mostly to discuss how the business might be able to convert its present investments into advertising money in the future. Talking about Meta’s endeavor to create a “leading AI,” he stated, “There are several ways to build a massive business here, including scaling business messaging, and introducing paid content or ads into AI interactions.”

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He took time to discuss the company’s latest large language model, Meta Llama 3, as well as the launch of Meta AI, which is the company’s response to OpenAI’s ChatGPT.

After that, Zuckerberg discussed possible avenues for growth in the mixed reality headset industry, such as a fitness or work headset. On Monday, Meta made the operating system that powers its Quest headsets publicly accessible. According to Zuckerberg, this will accelerate the growth of the mixed reality ecosystem.

Additionally, he promoted Meta’s augmented reality glasses, referring to them as “the perfect tool for an AI assistant because you can let them see what you see and hear what you hear.”

Meanwhile, Meta’s Reality Labs division, which holds the technology and software needed to construct the emerging metaverse, is still losing money. For the first quarter, Reality Labs recorded sales of $440 million and losses of $3.85 billion. Since the end of 2020, the division has suffered losses totaling more than $45 billion.

Zuckerberg has purchased some time for himself.

As of Wednesday’s end, Meta’s stock price had increased by 40% in 2024, having nearly tripled the previous year. In early April, it hit a record $527.34.

Following a harsh 2022 in which the firm lost over two-thirds of its worth, Wall Street seems to have given Zuckerberg back its trust.

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The rally’s main impetus has been a cost-cutting strategy implemented early in the year by the Meta CEO, who announced to investors that 2023 would be the “year of efficiency.” The corporation aimed to become a “stronger and more nimble organization” by cutting manpower and scrapping unneeded initiatives.

Zuckerberg stated on Wednesday that while Meta will keep running smoothly, investing more of its current resources in artificial intelligence will “grow our investment envelope meaningfully.”

An increase from a previous estimate of $30 billion to $37 billion is expected for capital expenditures in 2024, “as we continue to accelerate our infrastructure investments to support our artificial intelligence (AI) roadmap,” according to Meta. The estimated amount is $35 billion to $40 billion.

Although Zuckerberg pointed out that Meta has a “strong track record” in that area, he stated he anticipates a “multiyear investment cycle” before the company’s AI products scale into commercial offerings.

Chief Meta Finance Susan Li reiterated Zuckerberg’s comments, stating that before products can generate significant income, the business must scale them and develop sophisticated models.

“While there is tremendous long-term potential, we’re just much earlier on the return curve,” Li stated.

Investors were selling off their stocks even before the start of the call. This is because Meta overshadowed the first-quarter beat with a low revenue prediction for the second quarter.

Zuckerberg assured investors that they might benefit if they were prepared to ride along with the stock market’s steep decline.

“Historically, investing to build these new scaled experiences in our apps has been a very good long-term investment for us and for investors who stuck with us and the initial signs are quite positive here too,” Zuckerberg stated. “But building a leading AI will also be a larger undertaking than the other experiences we’ve added to our apps and this is likely going to take several years.”