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Meta earnings recap: Stock tumbles 6% as capex spending expected to reach new heights [Business Insider]

Meta Platforms Inc. delivered its fourth-quarter earnings report on Wednesday, and while the headline numbers were solid, the market’s attention was squarely fixed on a jaw-dropping capital expenditure forecast that sent shares sliding 6% in after-hours trading. The tech giant, which owns Facebook, Instagram, and WhatsApp, posted revenue of $48.4 billion for the quarter ending December 31, beating analyst expectations of $47 billion. But the celebratory tone was quickly dampened by management’s announcement that 2025 capex spending would likely land between $60 billion and $65 billion—a figure that significantly exceeds earlier Wall Street estimates of around $50 billion.

The sharp sell-off reflects a growing tension between Meta’s ambitious infrastructure buildout and investor patience. CEO Mark Zuckerberg, who has been vocal about his “year of efficiency” giving way to a “year of investment,” is now doubling down on artificial intelligence and data center expansion. The company said the higher spending will go toward servers, AI chips, and data center construction, with a particular focus on its Llama large language models and the metaverse division, Reality Labs. For context, Meta’s total capex in 2024 was just under $40 billion, meaning the new guidance represents a 50% to 60% jump year-over-year.

Why the market is spooked

Investors have been here before. In 2022, Meta’s stock cratered 64% as Zuckerberg poured billions into the metaverse with little near-term payoff. The scars from that period are still fresh, and many traders are wary of another capital-intensive cycle without clear revenue returns. During the earnings call, CFO Susan Li tried to reassure analysts by noting that “investments in core AI are already driving strong engagement and monetization improvements,” but she also acknowledged that “the full ROI on these projects will take years to materialize.”

The market’s reaction was particularly brutal because Meta’s core advertising business is performing exceptionally well. The family of apps saw ad revenue climb 22% year-over-year to $46.7 billion, driven by higher ad prices and increased user engagement. Daily active users across the Facebook family hit 3.35 billion, up 5% from a year ago. Yet, the capex news overshadowed these positives. “It’s a classic case of ‘good news, but not good enough,’” said Dan Ives, an analyst at Wedbush Securities. “The Street wanted to see a slower ramp in spending, not a full throttle approach.”

Reality Labs continues to burn cash

Reality Labs, Meta’s augmented and virtual reality division, remains a major drain on the bottom line. The unit reported an operating loss of $5.4 billion for the quarter, bringing its full-year 2024 loss to nearly $19 billion. Revenue for the division was a mere $1.1 billion, mostly from Quest headset sales. While Zuckerberg has framed these losses as necessary investments for the “next computing platform,” the timeline for profitability remains elusive. The company expects Reality Labs’ operating losses to “increase meaningfully” in 2025 as it scales up production of new hardware, including the upcoming Quest 4 and experimental AR glasses.

For now, Meta’s overall profitability remains strong. Net income for the fourth quarter was $16.8 billion, up from $14 billion in the year-ago period, with a net profit margin of 34.7%. The company also ended the quarter with $78.3 billion in cash and marketable securities, giving it plenty of runway to fund its ambitions. However, the capex guidance suggests that cash burn will accelerate, and some analysts are questioning whether the board will eventually step in to rein in spending.

What’s next for Meta stock?

Following the 6% drop, Meta shares are still up roughly 15% over the past 12 months, reflecting the broader rally in Big Tech. But the post-earnings volatility highlights a growing divergence between companies that are aggressively investing in AI infrastructure and those that are taking a more measured approach. Meta’s peers, including Microsoft and Google, have also raised their capex forecasts, but Meta’s increase is proportionally the largest relative to its revenue base.

Looking ahead, Zuckerberg’s bet is that AI-driven improvements in ad targeting, content recommendations, and virtual assistants will generate enough incremental revenue to justify the spending. Early signs are promising: Meta’s AI-powered recommendation systems have boosted Reels watch time by 15% and increased click-through rates on ads. But until those metrics translate into clear bottom-line acceleration, the stock is likely to remain volatile.

In the meantime, traders should brace for more turbulence. The next major catalyst will be Meta’s first-quarter 2025 earnings report in April, where the market will scrutinize whether revenue growth can keep pace with the exploding cost base. If the advertising momentum holds, the 6% drop could prove to be a buying opportunity. If not, the sell-off might be the start of a longer correction.

Ahmed Abed – News journalist

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