Meta stock slumps 13% after poor results. Here’s what I’ll do

Jon Smith flags up the reasons behind the fall in the Meta stock price overnight, along with his take on the direction from here.

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Most companies tend to release their earnings reports before or after the market is open. This makes sense, but it can mean that when the market reopens, we see a sharp rise or fall based on the results. For Meta Platforms (NASDAQ:META) stock, the share price will open lower today (25 April) due to poor results from last night. Indications based on the pre-market open price show it to be down 13% as I write. Here’s everything I need to know right now.

Looking at the numbers

Let’s delve into the results. On the face of it, there was plenty to be positive about. Revenue for the quarter came in at $36.46bn, up 27% versus the same figure last year. Even though costs rose slightly, net income for the quarter was double that of the same quarter in 2023.

Family daily active people (DAP) is a key metric the firm uses to assess how popular the platforms are. For March 2024, it recorded a DAP of 3.24bn, an increase of 7% year on year. This shows a staggering amount of control and access that Meta has across the different platforms it operates. It also shows that it’s still growing.

One concern was that expected capital expenditure for this year was increased from $30bn-$37bn to now be in the range of $35bn-$40 billion. This is “to accelerate our infrastructure investments to support our artificial intelligence (AI) roadmap”.

Concern about higher spending

One of the main reasons for the fall in the share price was due to the big push on higher spending. Of course, it could be that the investment in AI will pay off further down the line. But this free-wheeling approach on spending billions more than planned just this year hasn’t gone down well.

After all, this is the same business that last year was making large-scale job cuts in order to try and reduce costs. So it seems slightly odd that the firm is now happy to push the boat out with AI spending. This could undo all of the hard work on cost efficiencies from last year.

Even though AI should generate revenue for the business in the long term, it’s not the same immediate revenue seen by the likes of Nvidia or chip-makers. Therefore, some of this investment could end up being wasted money.

My conclusion

The stock is up an impressive 137% over the past year. So even if it does open today being 13% down, it’s not a complete disaster. Yet at the same time, it doesn’t give me enough of a discount to consider jumping in. With a price-to-earnings ratio of 32.34, it’s not overvalued for a tech growth stock. Yet it’s hardly a screaming buy either.

On that basis, I don’t have enough of a compelling reason to buy the stock despite the share price fall. Should the decline continue in coming weeks, then that’s another story! I’ll keep an eye on it to review next month.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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. Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has recommended Meta Platforms and Nvidia. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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