Meta Platforms (META) beat analysts' top- and bottom-line estimates in its first-quarter earnings report. Nevertheless, META stock plunged 10.6% in Thursday's session.
In the three months ended March 31, the Facebook parent reported revenue of $36.5 billion, an increase of 27.3% from the year-ago period. Earnings per share (EPS) more than doubled to $4.71.
The results easily beat analysts' expectations for revenue of $36.2 billion and earnings of $4.32 per share, according to CNBC.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
However, sentiment toward the Magnificent 7 stock turned negative when Meta provided its outlook on the second quarter and increased its estimated range for capital expenditures.
Specifically, Meta anticipates Q2 revenue to be in the range of $36.5 billion to $39 billion, which would result in an increase of 14.1% to 21.9% from the year-ago period.
However, the midpoint of this range ($37.8 billion) came up short of the consensus analyst estimate of $38.3 billion, according to CNBC.
On capital expenditures, the company now anticipates spending to range between $35 billion to $40 billion, up from its previous estimate of $30 billion to $37 billion.
The boost in spending comes as the company continues to "accelerate our infrastructure investments to support our artificial intelligence (AI) roadmap," Meta said in its press release. It went on to say that while it cannot provide guidance for the years beyond 2024, it expects capital expenditures to increase again next year.
Meta CEO Mark Zuckerberg defended the increased spending on the company's conference call.
"As we're scaling capex and energy expenses for AI, we'll continue focusing on operating the rest of our company efficiently," Zuckerberg said. "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."
"I think the message here is Zuckerberg is all in for AI and plans to build it out," says Gianmaria Feleppa, CEO of UCapital Fintech Group. "Investors should be happy with the earnings results, but it appears they’re unnerved on the amount of spending in AI."
Feleppa adds that this will be a good time to see if the market agrees with Meta investors. "If people get spooked by the amount of money companies are spending on AI, tech stocks could post another drop," the executive says. "If the market likes this news, the spending in the AI space will get more intense."
Analysts say to buy the dip on Meta stock
Financial services firm Jefferies believes the drop in Meta's stock is a buying opportunity. Analyst Brent Thill maintained a Buy rating after earnings, while reducing his price target to $540 from $585 in an April 25 report.
“The acceleration in Q1 revenue growth to 27% year-over-year (from 22%) is likely being overshadowed by the implied Q2 revenue growth deceleration to 18% year-over-year ... and increases in fiscal 2024 total expense and capex outlooks," Thill says. "However, we believe in META's successful track record of generating meaningful returns from prior investment cycles."
Thill's bullish outlook toward the communication services stock is widely shared across Wall Street. According to S&P Global Market Intelligence, 40 analysts have a Strong Buy rating on Meta, 11 say it's a Buy, seven call it a Hold and two have it at Sell. This works out to a consensus Buy recommendation.
Meanwhile, the average analyst target price for Meta stock is $524.79, representing implied upside of about 20% to current levels.
Related Content
-
Stock Market Today: Stocks Enjoy a Fed Day Relief RallyThe question now is whether Jerome Powell and other policymakers can get the balance right given all the new noise.
-
The SSA Is Changing How You Apply for Benefits and Update Your Direct Deposit Information: Here's What You Need to KnowThe SSA is transitioning to stronger identity verification procedures for both new benefit claims and direct deposit changes.
-
Stock Market Today: Stocks Enjoy a Fed Day Relief RallyThe question now is whether Jerome Powell and other policymakers can get the balance right given all the new noise.
-
The Free-Lunch Strategy to Reduce Risk From Tech StocksA recent rout in tech stocks has some investors thinking more defensively. This "free-lunch portfolio" strategy can help.
-
Stock Market Today: Stocks Skid Into Another Risk-Off TurnThe promise of the AI revolution can't overcome flickering hopes for a "Fed put."
-
How to Survive Market Mayhem2025 is turning out to be a turbulent year for the market, but don't panic. Here are four ways investors can ride out the storm.
-
Alternative Investments Under Trump: What You Need to KnowAs access to alternative markets opens up, retail investors looking to enhance their long-term financial outcomes have more opportunities to carefully consider.
-
Beware of TV/Billboard Personal Injury Law Firms: Here's WhyIf you or someone you know is tempted to hire a so-called settlement mill to handle a personal injury case, here are some reasons to reconsider.
-
How Small Businesses Can Clear the Economic Hurdles AheadShifting rules on taxes, trade and regulation are creating uncertainty for SMBs. Owners can overcome that by focusing on efficiency, flexibility and investment.
-
Stock Market Today: Dow Adds 353 Points Despite Soft Retail SalesInvestors and traders shake off another set of shaky economic numbers and send 10 of 11 sectors higher on Monday.
