Shares of parent company Facebook Meta Platforms Inc. were lower in late trading today after the company reported lower-than-expected user numbers and revealed plans to increase spending on data infrastructure in fiscal 2025.

The revelations came as Meta revealed its financial results for the third quarter of fiscal 2024, delivering a strong profit and revenue performance. The company said its profit before certain costs such as stock compensation came to $6.03 per share, well above the analyst’s target of $5.25 per share, while its figure Revenue jumped 19% to $40.59 billion, above the consensus estimate of $40.29 billion.

Meta also reported net income of $15.7 billion in the quarter, compared to a profit of just $11.6 billion a year earlier. But while the 35% increase in profitability sounds good, it’s actually the slowest growth rate for this metric since the second quarter of fiscal 2023.

Although the financials looked good, investors were more concerned about Meta’s user growth. The company said it had 3.29 billion daily active users on apps including Facebook, Instagram and Whatsapp at the end of the quarter, up 5% from last year but below Street’s target of 3.31 billion.

Investors also appear concerned about the scale of Meta’s ongoing investments in the data center infrastructure it needs to support its business. ambitions in artificial intelligence. The company raised its capital spending guidance for fiscal 2024 to a range of $38 billion to $40 billion, up from a prior estimate of $37 billion to $40 billion. Additionally, Meta said it expects this spending to “increase significantly” in fiscal 2025 as its infrastructure expansion plans accelerate.

“Our investments in AI continue to require serious infrastructure, and I plan to continue to invest significantly there as well,” Meta founder and CEO Mark Zuckerberg (pictured) said on a conference call with analysts.

Building Meta’s infrastructure required it to spend billions of dollars on Nvidia Corp.’s advanced graphics processing units, as well as other data center equipment needed to power it. AI models like Llama. It also spent money on hardware to try to bolster its core advertising business, which was disrupted by Apple’s 2021 iOS privacy update. According to Zuckerberg, more than 1 million advertisers now use Meta generative AI technology to improve targeting and generate more engaging ads.

Wall Street investors are reportedly increasingly concerned that tech giants like Meta, Microsoft Corp. and Alphabet Inc. are spending too much money on infrastructure spending without seeing an immediate return on those investments. Zuckerberg himself admitted this in a interview with Bloomberg in July, when he admitted that some companies might be “overbuilding now.” However, he justified this decision by saying that the risk of underinvestment was too great.

During the conference call, he once again reiterated the need to expand Meta’s data centers.

“The formula around building infrastructure may not be what investors want to hear in the short term,” he said. “But I just think the opportunities here are really great, we’re going to continue to invest significantly in this area and I’m proud of the teams that are doing a great job of putting great capacity in place so that we can deliver models and world-class products.

Despite the increase in capital spending, Meta’s said it now expects its total spending for fiscal 2024 to be between $96 billion and $98 billion, down from its previous range of $96 billion to $99 billion. dollars.

Increase in advertising sales

As always, investors were eager to know the health of Meta’s advertising business, and the results were somewhat mixed. The company said its advertising revenue increased 19% from a year earlier to $39.9 billion, accounting for 98.3% of its total sales in the quarter.

However, concerns have been raised about advertising spending in the Asia-Pacific region. Revenue there grew 15% in the quarter, down from 28% sequential growth. According to Susan Li, Meta’s chief financial officer, the deceleration was due to a “slowing demand” from Chinese advertisers such as online retail giants Temu and Shein, which reduced their digital ad spending budgets.

As always, Meta’s Reality Labs business, which houses its metaverse and virtual reality initiatives, continued to bleed cash. The company posted an operating loss of $4.4 billion in the quarter, although that fell short of analysts’ forecasts of a loss of $4.68 billion. Its sales jumped 29% from a year earlier to $270 million, less than the $310.4 million analysts expected. The latest figures mean that Reality Labs has now recorded a total operating loss of more than $58 billion since its inception in 2020.

Looking ahead to the fourth quarter, Meta said it sees total revenue between $45 billion and $48 billion, with the midpoint of that range just ahead of the Street’s target of $46.3 billion. of dollars.

Overall, it appears investors were a bit disappointed by Meta’s report, as the company’s shares fell just over 3% during the after-hours trading session .

Photo: Antoine Quintano/Flickr