Shares of Facebook parent Meta Platforms (NASDAQ: META) were hammered during after-hours trading on Wednesday, sliding more than 16% at one point. The big pullback in the stock price came after the company released its first-quarter earnings report.
Interestingly, the social media specialist’s report actually included some pretty upbeat data about Q1 itself. Revenue and earnings per share (EPS), for instance, were both ahead of analysts’ average forecasts for the two metrics. So why did the stock fall?
Probably because of Meta’s guidance. Not only did it say it’s now expecting to spend more on capital expenditures during 2024 than it previously anticipated, but its second-quarter revenue guidance implies a significant deceleration in its year-over-year growth rate.
First-quarter results
Meta’s first-quarter financial performance was quite impressive. Total revenue rose 27% year over year to $36.5 billion, beating analysts’ consensus forecast for about $36.2 billion.
This top-line performance put the figure at the high end of management’s guidance for the period for revenue between $34.5 and $37 billion. Further, this marked an acceleration from the 25% year-over-year revenue growth Meta reported in the fourth quarter of 2023.
Such strong sales growth, combined with benefits from the company’s increasing focus on efficiency, unsurprisingly led to significant operating margin expansion and, ultimately, a more than doubling in earnings per share. Meta’s operating margin expanded from 25% in the year-ago quarter to 38%, while earnings per share rose 114% to $4.71.
This performance was fueled by healthy user metrics, including a 7% year-over-year increase in daily users across its platforms, a 20% jump in ad impressions, and a 6% boost in average price per ad.
These strong results put cash, cash equivalents, and marketable securities at the end of the period at about $58 billion, even as Meta spent approximately $14.6 billion buying back its stock and paid out $1.3 billion in dividends to shareholders.
Guidance
Considering Meta’s incredible first-quarter results, the company’s guidance for a slowdown is a bit surprising. Management’s outlook for second-quarter revenue of between $36.5 billion and $39 billion implies 18% year-over-year growth — a dramatic deceleration from the 27% growth the company reported in Q1.
Such a significant expected pullback in its top-line year-over-year growth rate may cause some investors to worry. They might be asking: Could growth slow even more in the coming quarters?
This is particularly concerning in a high-interest-rate environment like the ones consumers are in today. Investors are looking for clues as to whether or not this will negatively impact consumers to the point that advertisers start being more judicious about their marketing budgets.
Another reason Meta investors may be disappointed is the company increased its outlook for capital expenditures for the full year. Management said it now expects to spend between $35 billion and $40 billion, up from a previous forecast for $30 billion to $37 billion. This increase is due to a continued acceleration of Meta’s infrastructure investments to support its artificial intelligence (AI) product development, said Meta Chief Financial Officer Susan Li in the company’s first-quarter earnings report.
Slowing growth combined with higher-than-expected capital expenditures are definitely good reasons for investors to be incrementally cautious.
Should you invest $1,000 in Meta Platforms right now?
Before you buy stock in Meta Platforms, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Meta Platforms wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $505,010!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
See the 10 stocks »
*Stock Advisor returns as of April 22, 2024
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Daniel Sparks has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.
Here’s What Was Wrong With Meta’s Q1 Earnings Report was originally published by The Motley Fool
