The Meta rate is falling despite very good results

Shares of Meta, the owner of Facebook and Instagram, fall by over 16%. before the opening of stock exchanges in the US. This despite very good results for the first quarter, which exceeded analysts' expectations. Investors did not like the worse forecasts for the second quarter and the announcement of a longer wait for profits resulting from the implementation of artificial intelligence. All this while TikTok, Instagram's main competitor, is having serious problems in the US.

Results publication week

This is the most important week in the period of publishing the results of American companies for the first quarter. As many as 4 companies from the group of the most important technology companies "Magnificent 7" publish their results. We have already learned the results of Tesla and Meta, and on Thursday the results will be published by Microsoft and Alphabet. They will do it next week Amazon and Apple, and Nvidia will report its results on May 22.

Investors are closely watching the results of the most important technology companies. Because technology companies were largely responsible for the current market rally. Magnificent 7 accounts for 29%. market capitalization S & P 500 and before the publication of results, it was estimated that these companies would increase profits by 37% this quarter. While the remaining 493 companies from the S&P500 index will see their profits decline by an average of 3%.

It is therefore not surprising that reactions to company results are violent. Meta released its results on Wednesday, beating analysts' expectations. Earnings per share (EPS) were $4,71 versus the expected $4,30, and revenues were $36,46 billion versus the forecast of $36,12 billion. However, disappointing second-quarter forecasts have seen the company's shares now fall more than 16% in after-hours trading. The company expects an increase in operating costs in 2024 due to the still high inflation.

AI profitable not yet

Investors are currently paying particular attention to topics related to artificial intelligence. The company is working on an AI model of the intelligent assistant Llama 3, which is expected to be unveiled soon and used in the company's products such as chatbots on Messenger and Instagram and other solutions. However, investors expect not only the solutions themselves, but also the prospects for their monetization. And in this context, investors listened closely to the words of Mark Zuckerberg, who said at a meeting after the publication of the results that the moment when AI solutions would start to generate significant income may still be distant. This also likely had a negative impact on the stock price.

The drop in Meta's share prices must be seen in the context of the recent increases in the company's shares. Since the beginning of the year, the share price has increased by 42%. and in the last 12 months by 138 percent. In this way, the company outperformed its main rival – Google. The increases resulted primarily from the very good results of the online advertising market. The company also announced the payment of a dividend and the repurchase of its own shares. An opportunity for the company may also be the order passed by the US Congress and signed by President Biden to sell the company that owns Tik Tok. Instagram currently remains the Chinese platform's main competitor.

About the author

Pawel Majtkowski - analyst eToro on the Polish market, which shares its weekly commentary on the latest stock market information. Paweł is a recognized expert on financial markets with extensive experience as an analyst in financial institutions. He is also one of the most cited experts in the field of economy and financial markets in Poland. He graduated from law studies at the University of Warsaw. He is also the author of many publications in the field of investing, personal finance and economy.