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.
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.
