Meta, the parent company of Facebook, posted solid results in the second quarter this year, but the stock plunged more than 6% as operating profit and its third-quarter outlook fell short of market expectations. Concerns grew that its massive artificial intelligence (AI) investment has yet to translate into clear results.
Meta said on the 29th (local time) that second-quarter revenue rose 28% from a year earlier to $60.8 billion (about 87.8 trillion won). That beat Wall Street's estimate of $60.17 billion compiled by London Stock Exchange Group (LSEG).
However, operating profit fell 8% over the same period to $18.78 billion (about 27 trillion won), and net income dropped 14% to $15.85 billion (about 23 trillion won). The surge in expenditure by 55% was the reason.
The core business of social media (SNS), which accounts for 99.3% of Meta's revenue, drove second-quarter results. Revenue in the "Apps family" institutional sector, including social media advertising, rose 28% to $60.37 billion. However, operating profit during the same period fell 6.3% to $23.4 billion.
The number of daily active people (DAP) who used Meta's three major social media apps—Facebook, Instagram, and WhatsApp—at least once a day averaged 3.6 billion, up 3% in a year.
Reality Labs, which develops AI smart glasses and more, posted revenue of $430 million, up 16.4%. However, operating loss was $4.53 billion, widening from a year earlier.
As a result, Meta's earnings per share (EPS) came in at $6.18, more than $1 below Wall Street's forecast of $7.22.
Second-quarter capital expenditure totaled $31.08 billion (about 44.9 trillion won), most of which is presumed to have been spent on AI infrastructure. Meta is pouring massive funds into AI products and services, including AI data centers, smart glasses, and next-generation AI model development.
As investment in AI infrastructure increased, Meta's free cash flow also plunged. The company's second-quarter free cash flow fell 91% to $784 million. That is the lowest level since the third quarter of 2022. Free cash flow is the cash a company actually retains after deducting capital expenditures from cash earned through operations.
The outlook for future results also fell short of expectations. Meta guided third-quarter revenue of $61 billion to $64 billion. That was below Wall Street's estimate of $63.15 billion compiled by LSEG.
Meta CEO Mark Zuckerberg said, "AI investment has entered a phase where it is accelerating our core businesses across the board, including advertising and content recommendation systems."
Meta plans to continue aggressive AI investment. The company raised the lower end of its capital expenditure outlook for this year, adjusting it to $130 billion to $145 billion from the previous $125 billion to $145 billion.
However, because Meta is covering expense for AI with revenue and profit from its advertising business, the market is questioning whether such large-scale investment can lead to long-term results. Unlike Google, Microsoft (MS), and Amazon, Meta lacks a large-scale cloud business, so investor concerns about how it will recoup its AI investment are relatively greater.
Luke Stillman, executive director at the market research firm Madison & Wall, told Reuters, "Meta is effectively putting all its resources into securing AI computing capacity, and that is the part investors worry about most every earnings release."
Meta's share price fell more than 6% in after-hours trading that day. Since the start of the year, the stock has dropped about 11%.