Investors’ response to Meta’s earnings report for the first quarter was not good, as it set the stock falling, and it lost 19% value in the preceding hours of the announcement and erased $200 billion of the company’s market cap, but Mark Zuckerberg seemed prepared for it.
It was not the first time that Meta was facing a tough time, its Metaverse experience was also not very positive, but this is just one side of the picture, but there is immense potential for the trillion-dollar company considering its massive user base along with the new technologies that it is developing.
Meta has already introduced AI
Meta has no shortage of data for training its AI models, and it has already introduced some AI features in its apps. But aside from artificial intelligence and the metaverse, the primary business of the company that is selling ads on social media is working flawlessly as it is generating nearly all the cash for it.
If we look at the financial stats of the company, the quarter one results were better than what Wall Street was expecting for earnings per share and total revenue, as the key indicators were an increase in ad impressions by 20% and a higher average price for ads by six percent.
The capital expenditure forecast for 2024 was also revised and was increased to $35 billion to $40 billion, which is realistic considering the fast development of AI technology and the opportunities it offers. Zuckerberg’s focus on expenses and suggesting ways about how the company will bleed revenue also freaked investors which triggered the selloff, but it also has a positive side other than just buying the dip.
It should also be realized that Meta is among a handful of companies that can afford to spend such an amount of money for the development of technology and at this moment it cannot afford to stay behind when the entire businesses are on the verge of transformation.
Meta’s majority user base lies outside US
The company has reported good numbers as the year-over-year increase in revenue was 27%, which is definitely higher than the previous year and the margins also improved substantially. The positive thing is that the company has less debt than its cash as its enterprise value is $1.10 trillion and its market cap is $1.12 trillion. Manuel Paul Dipold has given a good calculation of a fair value of Meta’s stock price.
But the metaverse is the worst bleeding spot for Meta as it reported a loss of $13 billion in 2022 and around $16 billion in 2023, and at the press time, it remains a continuous revenue-burning dark hole as it generates very little revenue and sometimes goes into decline.
Looking at the sales figures, it feels like the US and Canadian markets have matured for Meta as no growth can be seen there, but European business is still improving, and the Asian region, along with Brazil seems a potential market with a lot of growth capacity. OpenAI has also recently focused on the Asian market and opened its first Asian office in Japan to increase working relationships with Asian businesses and the government sector.
The point to consider is that currently, growth in other emerging markets is higher than that of European and US markets, and considering the population distribution, most of the user base of Meta is outside the US and these users are less monetized, which can bring an immense opportunity for Meta.