Meta stock experienced a 2.6% dip on Wednesday, just before its highly anticipated earnings release scheduled for after the closing bell. This decline was notable as it outstripped the Nasdaq 100's decline of approximately 1% and was more than three times greater than the S&P 500's drop of about 0.75%. The broader market was under pressure following the release of first-quarter GDP data, which revealed a decline at an annualized rate of 0.3%.
Mark Zuckerberg, the CEO of Meta, has been making the rounds in various public forums, engaging in livestreams and podcast discussions. He has shared personal insights, including a touching tribute to his wife with a dedicated 7-foot statue and his thoughts on higher education. Investors are particularly eager to hear how Meta plans to navigate the challenges posed by tariffs, a topic Zuckerberg has approached with caution, indicating a wait-and-see strategy.
In the lead-up to its earnings announcement, Meta hosted its inaugural LlamaCon, an AI developer event where it unveiled a new Llama API and announced a standalone Meta AI app, marking a direct challenge to OpenAI's ChatGPT. This event not only highlighted Meta's commitment to the AI landscape but also served as a strategic move to reassure investors about the company's direction in the rapidly evolving AI ecosystem.
Analysts, such as Forrester VP Mike Proulx, anticipate that the upcoming earnings release and the subsequent call will be filled with significant updates on AI initiatives. He noted that these updates are crucial given the mounting pressures Meta is facing, including the ongoing FTC antitrust trial. Investors will be keenly listening for indications that Meta's substantial investments in AI—projected to reach up to $65 billion in capital expenditures by 2025—are beginning to yield dividends.
Meta's social media platform, Threads, reported 320 million monthly active users during its last earnings call, with a daily growth of one million users. Despite its rapid expansion, Meta executives have tempered expectations, stating that they do not foresee Threads contributing significantly to revenue until 2025. However, Zuckerberg remains optimistic, suggesting that Threads could eventually reach a billion users and become a leading discussion platform.
Investors are also closely monitoring how the ongoing US-China trade war may impact Meta's bottom line. The company disclosed that approximately 11% of its total ad sales last year came from Chinese advertisers, raising concerns as tariffs on Chinese imports have escalated to as high as 145%. This could diminish the incentive for Chinese companies to advertise to American consumers, potentially jeopardizing Meta's advertising revenue.
Analysts are paying close attention to Meta's investments in generative AI and its Reality Labs division, which has incurred significant losses in recent quarters. Zuckerberg has expressed a willingness to continue investing heavily in generative AI, despite calls from analysts for clarity on when these expenditures will translate into financial returns. Reality Labs, responsible for products such as the Quest headsets, has seen a reorganization, with key leaders now reporting directly to Meta's executive team.
Meta's Reality Labs division has accumulated over $50 billion in losses since 2020, and investors are eager to see if recent organizational changes will lead to a reduction in these losses. CTO Andrew Bosworth has indicated that 2025 is a critical year for Reality Labs, emphasizing the need for mobile success to bolster Meta's metaverse ambitions.
Despite macroeconomic challenges, JPMorgan analysts remain optimistic about Meta, citing strong execution and opportunities in the AI space as key drivers for the company's performance. They project that Meta's revenue could grow by approximately 13% year over year, and meeting or exceeding these expectations could result in a boost to the stock price.
As Meta approaches its earnings release, the financial community is also acutely aware of the ongoing FTC antitrust trial, which has the potential to impact the company's reputation and operations. Although the trial's effects are not expected to be discussed during the earnings call, the outcome could still influence investor sentiment.
Overall, as Meta continues to navigate the complexities of the tech landscape, its focus on AI advancements and strategic adjustments within its platforms will be critical for sustaining growth and meeting market expectations.
