Meta stock tumbles despite solid Q3 earnings beat

Meta, by any definition, had a strong third-quarter earnings report Wednesday. Earnings per share blew past analyst expectations, coming in at $7.25 per share versus an estimated $6.69. Revenues, meanwhile, topped $50 billion for the first time ever. Despite that, though, the company's stock is poised to drop by between 8% and 9% when it begins trading Thursday morning.

That's likely due to its announcement that capital expenditures more than doubled from the same period last year, hitting $19.4 billion — and it expects those costs to continue to climb higher, ultimately hitting as much as $72 billion this year (versus previous estimates as low as $66 billion) and more in 2026.

CEO and founder Mark Zuckerberg insists the spending will be worth it in the long term, a refrain he has sung for several quarters now. But investors seem to be growing weary of that chorus. Meta's Reality Labs lost another $4.4 billion in the third-quarter, putting its losses since 2020 at over $70 billion. And fourth-quarter revenues for that division are expected to be lower than the 2024 numbers, due to the lack of a new VR headset.

Most of the capex spending, of course, is on the company's AI efforts. Zuckerberg warned Meta will likely need more power than initially estimated as it chases AI superintelligence. Also, he said, the company would be increasing investing in manufacturing its AI glasses, after the initial batch of the $799 Meta Ray-Ban Display glasses have sold out.

“Being able to make a significantly larger investment here is very likely to be a profitable thing over, over some period,” Zuckerberg said on the call.

Still, given the competition in the AI field, most analysts are continuing to back Meta.

"While the ultimate level of investment contemplated this year has increased, we believe the spending has been justified, with the infusion of AI capabilities across the company's ad stack and content recommendation engines driving tangible results for Meta's Family of Apps and Reality Labs," wrote Wedbush in a note to investors.

Some, though, warned that the company's pursuit of AI dominance could reflect a lagging attention to what is making it profitable today.

"As impressive as it is to have 3.5 billion daily active users across the Family of Apps, Zuckerberg and CFO Li’s commentary really focused on the AI evolution of the company," said Ryan Lee, senior vice president of product and strategy at Direxion. "Next year's spend appears to be daunting investors as it is clear the cash cow of the company, advertising, no longer remains the top priority."

And Nat Schindler of Scotiabank said Meta “will need to see a bevy of new revenue streams to validate their capex ramp.”

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