Meta Platforms, Inc. shelled out $10 billion on artificial intelligence and servers in the third quarter, raising hopes on Wall Street that the social media giant can claw its way out of an advertising rut that has weighed on its top line.
The Facebook parent company on Wednesday prompted concerns over its $10 billion spend on capital expenditures, or expenses used to increase the long-term value of the company, in quarter that ended September 30. The amount was double what the company had spent in the same period last year.
But some analysts say that it will pay off in the long run.
“For all the pushback, beyond 2023, we’re going to be balanced,” said Brian Fitzgerald, managing director at Wells Fargo Securities. “They don’t expect it to grow over the quarter, but they are investing for the future.”
The amount went towards optimizing the company’s AI infrastructure with data centers, and servers. They expect 2022 to close expenditures at $33 billion, and to hike up to $40 billion for next year.
“Our community continues to grow and I’m pleased with the strong engagement we’re seeing driven by progress on our discovery engine and products like Reels,” said Mark Zuckerberg on the company press release.
The move comes as Meta faces mounting pressure over its ad business, which accounts for the vast majority of its revenue. Ad revenues fell to $27.4 billion, by 4% year over year.
But the company reported a 17% increase since last year in ad impressions and a boost of daily active users across their family of apps by 4%, 2.93 billion on average, showing signs of recovery from Apple’s software.
It hindered Meta’s advertising revenue, and forced the company to revisit the drawing board. The company will prioritize improving ad viewership in Reels and AI discovery to optimize search engines, polishing user recommendations.
Reels contributed 0.7%, or $800 million, in this quarter’s revenue–$27,714 million, a 4% decrease since last year–showing signs that monetization will slowly progress.
Still, investors and analysts are weary of Zuckerberg’s heavy spending towards the Metaverse; Reality Labs lost $3.6 billion this quarter.
“The major concern is they’re not seeing the Metaverse model is going to work,” Fitzgerald said. “People would love to see moderation around the Metaverse spend.”
Costs and expenses hiked by 19% this quarter, a total of $22 billion. Meta’s experiencing a hiring freeze to lower costs, despite boosting their headcount by 28% since this time in 2021. They project to experience lay-offs next year to further lower expenses, especially with a looming recession.
“They promised to keep hiring steady, so making sure they’re not hiring will be a key indicator,” said Laura Martin, managing director and senior analyst at Needham and Co, LLC.
Their earnings per share in the third quarter dropped by 49%, totalling $1.64.
The stock further plunged after the earnings call. While the Nasdaq Composite is at 31%, Meta’s stock dropped to 71%, stumped at $94 per share, levels last seen in 2015.