WEBVTT - Instant Reaction: Meta's Outlook Spooks Investors

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio News.

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<v Speaker 2>We're watching shares of matap platforms down ten percent after

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<v Speaker 2>the company reported revenue that came in above estimates thirty

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<v Speaker 2>six point four to six billion versus estimates of thirty

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<v Speaker 2>six point one two billion. The concern, it looks like Carol,

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<v Speaker 2>that investors have is all about that guidance. Second quarter

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<v Speaker 2>revenue expected to come between thirty six point five and

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<v Speaker 2>thirty nine billion, whereas estimates were for thirty eight point

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<v Speaker 2>two four billion dollars. This is essentially the second quarter

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<v Speaker 2>sales forecast lagging at least at the midpoint. But we're

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<v Speaker 2>seeing a kind of an outsize reaction in the after hours.

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<v Speaker 1>Yeah, it's kind of interesting. We're going to need some

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<v Speaker 1>you know, kind of color around these numbers and also

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<v Speaker 1>this you know, increase in expenses potentially and spending. Let's

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<v Speaker 1>get to it with our Bloomberg News contributor John Erlickman,

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<v Speaker 1>who follows the tech sector and has for a long time.

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<v Speaker 1>John joining us from Toronto. John, the stock is sinking

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<v Speaker 1>in the aftermarket. I mean, it's had quite a run

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<v Speaker 1>here in twenty twenty four. But again, shares of Meta

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<v Speaker 1>down about ten percent, what jumps out for you and

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<v Speaker 1>why do you think maybe investors are so disappointed? Is

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<v Speaker 1>it all about that outlook?

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<v Speaker 3>I think Carol, at the end of the day, you

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<v Speaker 3>and Tim have outlined all the considerations that are playing

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<v Speaker 3>into the stock decline. Let's certainly wait for some details

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<v Speaker 3>on the conference call later on how the AI roadmap

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<v Speaker 3>is playing out. But I think the context here is

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<v Speaker 3>very important. So you were talking about the run up

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<v Speaker 3>in the stock last year and the continued rally this year.

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<v Speaker 3>It's easily outpacing all the digital ad players because not

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<v Speaker 3>only did they prove to Wall Street that they can

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<v Speaker 3>deliver we saw that in the previous quarter, but also

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<v Speaker 3>that they have been seen as one of the earliest

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<v Speaker 3>big winners in big tech around AI. You could argue

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<v Speaker 3>it's Microsoft and Meta that have shown the strongest ability

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<v Speaker 3>to implement implement generative AI, work it into the system.

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<v Speaker 3>So Tim was first to talk about the revenue number

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<v Speaker 3>for the current quarter possibly ending up being a little

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<v Speaker 3>light versus expectations, although in theory, based on the guidance

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<v Speaker 3>they're giving us, it could be a little bit stronger.

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<v Speaker 3>You highlighted the expenses. I think the fact that they

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<v Speaker 3>are communicating around those expenses being impacted by their AI push.

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<v Speaker 3>That's going to have to be a decision that investors make,

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<v Speaker 3>because when this stock lost basically two thirds of its

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<v Speaker 3>value in twenty twenty two, people were concerned about spending

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<v Speaker 3>on the metaverse with an unclear roadmap. Most of Wall

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<v Speaker 3>Street these days thinks that it is worthwhile to spend

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<v Speaker 3>on AI, and heck, they know how much those Nvidia

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<v Speaker 3>GPUs cost, so there seems to be a willingness to

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<v Speaker 3>spend if it will mean bigger returns. You did see

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<v Speaker 3>the revenue number for the current quarter pretty strong. This

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<v Speaker 3>is the strongest growth we've seen from them in three

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<v Speaker 3>years time. So I think we're going to have to

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<v Speaker 3>let the math fall. The simplest part of this story

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<v Speaker 3>is that expectations were high. The stock had rallied a lot,

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<v Speaker 3>completely different story than Tesla yesterday. And let's see if

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<v Speaker 3>they give us more details on the AI.

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<v Speaker 4>Yeah.

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<v Speaker 2>I think you bring up a really good point about

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<v Speaker 2>the stock being up close to forty percent so far

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<v Speaker 2>this year, expectations being high, just with the run up

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<v Speaker 2>that we had last year too. I do want to

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<v Speaker 2>bring in also, Man Deep saying Bloomberg Intelligence senior tech

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<v Speaker 2>industry analysts whose just now looking at the numbers as well.

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<v Speaker 2>Man deep the stock down about nine point six percent

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<v Speaker 2>right now. You set up the call in the print

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<v Speaker 2>in a great way for us earlier on the program.

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<v Speaker 2>Your reaction to the numbers.

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<v Speaker 4>The focus is more on the spending and the guide

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<v Speaker 4>and the fact that they raised the capex guide by

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<v Speaker 4>more than ten percent. I mean, investors are very fearful.

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<v Speaker 4>Whenever this company talks about spending more, I think the

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<v Speaker 4>alarm bells started ringing.

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<v Speaker 2>I heard that somewhere you got to spend money to

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<v Speaker 2>make money.

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<v Speaker 4>Well, so I think in their case, the fact that

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<v Speaker 4>they go so big and you know, in the past

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<v Speaker 4>they haven't cared about what investors think, and it can

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<v Speaker 4>be kind of a difficult scenario for people to imagine

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<v Speaker 4>if the growth were to slow down and they're talking

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<v Speaker 4>about raising capex, raising op x. Is it twenty twenty

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<v Speaker 4>two all over again? And that seems to be the react.

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<v Speaker 1>AD impressions up twenty percent in the quarter compared with

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<v Speaker 1>the same period last year. The average price the platform

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<v Speaker 1>is able to charge per AD is also up six

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<v Speaker 1>percent or Alex Barinka weighing in on this, you know

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<v Speaker 1>this gets to the point with what we talked about earlier,

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<v Speaker 1>Like I get it. Everybody is excited about AI. You

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<v Speaker 1>seem to say that in terms of ad targeting, it

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<v Speaker 1>makes sense in terms of what they're doing. So for

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<v Speaker 1>you who understands this company like no other, like the

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<v Speaker 1>spend makes sense or again it's mandeep a little bit

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<v Speaker 1>of a balance here.

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<v Speaker 4>If they had said, Okay, if we are raising our

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<v Speaker 4>capex and we expect to monetize Lama three, our latest model,

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<v Speaker 4>in this way, then I think it would have been

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<v Speaker 4>a lot more palatable. Right now, the guidance is more

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<v Speaker 4>about we are raising our capex, we are raising our opics,

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<v Speaker 4>and there isn't anything. Maybe we learned that on the call.

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<v Speaker 1>What's the question you would ask.

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<v Speaker 4>How do you plan to monetize generative AI beyond the

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<v Speaker 4>ad targeting? Everyone can see the proof in the ad

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<v Speaker 4>pricing numbers and this quarter was great, but how do

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<v Speaker 4>you go beyond monetizing Jenny I separately, because Meta does

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<v Speaker 4>have an engagement problem. As I was alluding to before,

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<v Speaker 4>The blue app is losing engagement, so you somehow need

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<v Speaker 4>to offset that somewhere else beyond the TikTok band hope

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<v Speaker 4>that everyone thinks he is going to benefit that.

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<v Speaker 2>John Relick, when I see you nodding here when Mandeep

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<v Speaker 2>is talking about Meta's engagement problem, I mean, I don't

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<v Speaker 2>know about you, but at least when it comes to

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<v Speaker 2>the reels function, the TikTok clone in Instagram, I mean,

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<v Speaker 2>sometimes I sit down with that thing and you know,

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<v Speaker 2>suddenly I look up in twenty minutes have passed and

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<v Speaker 2>I'm like, how did I just waste twenty minutes of

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<v Speaker 2>my life with this?

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<v Speaker 3>That happens to pull yourself out. Pull yourself out, Tim

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<v Speaker 3>if you can't look. Mandeep has done some of the

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<v Speaker 3>best work on implementing AI so far, and I think,

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<v Speaker 3>actually we'll have a better conversation once Alphabet reports its results,

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<v Speaker 3>because it was Mandy who said to me, if they

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<v Speaker 3>can prove that their search business is not being impacted

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<v Speaker 3>by all this talk about, you know, chat bots that

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<v Speaker 3>courage people to spend more time on the Facebook platforms,

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<v Speaker 3>on the Meta platforms, well, then maybe Meta will feel

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<v Speaker 3>that they have to appease Wall Street in a bigger way.

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<v Speaker 3>You were talking earlier about Mark Zuckerberg and the T

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<v Speaker 3>shirt in the necklace. I was just thinking back to

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<v Speaker 3>Mark Zuckerberg, you know, giving the suit and tie approach

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<v Speaker 3>to Wall Street when the last quarter it was all

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<v Speaker 3>about cost controls, issuing a dividend, focusing on stock buybacks.

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<v Speaker 3>Historically that has not been the Mark Zuckerberg. We know

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<v Speaker 3>this is. I mean, it's remarkable that these are even

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<v Speaker 3>public companies sometimes when you think about how hungry all

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<v Speaker 3>these tech entrepreneurs are to get the right the next

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<v Speaker 3>story right. So I think that yes, I would agree

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<v Speaker 3>with man Deep, let us know more on the profit

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<v Speaker 3>and lost story around your AI initiatives. But I think

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<v Speaker 3>for Mark Zuckerberg, when the table stakes seems so high

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<v Speaker 3>to all these players in Silicon Valley right now, he's

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<v Speaker 3>probably made a new chess move to say we won

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<v Speaker 3>over Wall Street. Now we got to win the battle

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<v Speaker 3>on the AI front.

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<v Speaker 4>And I would just have one more thing. If they

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<v Speaker 4>really wanted to fund the GENI initiatives, they could have

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<v Speaker 4>said we are curtailing a reality lab spend. In the print,

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<v Speaker 4>it's very obvious he wants to keep spending on reality labs.

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<v Speaker 4>There is no pullback on that front.

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<v Speaker 1>So the CFO, Susan, why is it I forget right? Susan,

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<v Speaker 1>whne am I saying it correctly in the statement talking

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<v Speaker 1>about the metaverse business reality labs. For reality labs, we

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<v Speaker 1>continue to expect operating losses to increase meaningfully year over

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<v Speaker 1>year due to our ongoing product development efforts and our

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<v Speaker 1>investments to further scale our ecosystem. So Mandy, they're not

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<v Speaker 1>scaling back.

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<v Speaker 4>They're not and they want to increase spending on AI,

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<v Speaker 4>which I think investors wouldn't mind given the state of

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<v Speaker 4>generative AI. But you have to see that discipline that

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<v Speaker 4>they have shown in the last eighteen months continue Why

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<v Speaker 4>go back to that twenty twenty two phase where you know, everyone.

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<v Speaker 1>Question we learned how well that worked?

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<v Speaker 4>Right? Well?

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<v Speaker 2>John, I mean there's a difference between investing in AI

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<v Speaker 2>for ad tech and investing in AI for engagement on

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<v Speaker 2>the traditional family of platforms, that family of apps. And

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<v Speaker 2>there's a difference in spending billions of dollars. And I

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<v Speaker 2>think many investors over the last couple of years would

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<v Speaker 2>argue blowing billions of dollars on headsets and trying to

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<v Speaker 2>create a new type of computing platform.

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<v Speaker 3>Very true, very true. But I would say that if

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<v Speaker 3>Mark Zuckerberg has already been very willing to make comments

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<v Speaker 3>on Apple's VR and AR initiatives, and Apple is now

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<v Speaker 3>a story where we're looking for more details on their

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<v Speaker 3>AI strategy. We just don't know where we're going. We

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<v Speaker 3>don't know what form factor will be the dominant one

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<v Speaker 3>in a decade. We don't know exactly what AI strategy

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<v Speaker 3>will be the most successful one. And I think to

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<v Speaker 3>the Reality Labs reality it's that if you don't know,

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<v Speaker 3>and you have the capital that you can commit to

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<v Speaker 3>these things, and you're willing to take, you know, a

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<v Speaker 3>slap on the wrist from from Wall Street so that

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<v Speaker 3>you can keep going down both of these paths, because

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<v Speaker 3>arguably Apple is as well making fresh hardware bets and

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<v Speaker 3>AI bets. I think it just speaks to the fact

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<v Speaker 3>this is a very exciting time after a lot of

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<v Speaker 3>predictability in Silicon Valley for the last decade.

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<v Speaker 1>What's interesting is and we're continuing to see Meta down

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<v Speaker 1>about ten percent eleven percent in the after hours. Pinterest

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<v Speaker 1>is also down about six percent in the after hours.

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<v Speaker 1>We're watching some a two undred fifty billion dollar dollar

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<v Speaker 1>exchange traded funny TAF tracking. The NAIs doc got hit

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<v Speaker 1>in late hours following Meta too so we're seeing it

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<v Speaker 1>kind of dragged down the sector MENTEP. If Meta was

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<v Speaker 1>not up almost forty percent this year, would would maybe

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<v Speaker 1>Wall Street be a little bit more patient.

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<v Speaker 4>I think so, And to an extent, you know, it

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<v Speaker 4>is tied to the fact that stock had done really well.

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<v Speaker 4>But at the same time, I think if they are

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<v Speaker 4>not in raised the capex and the opics view and

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<v Speaker 4>probably not said that they will keep spending on reality laps,

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<v Speaker 4>you wouldn't have seen such a reaction that this is

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<v Speaker 4>more about investors really panicking around Meta, going back to

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<v Speaker 4>you know, they're.

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<v Speaker 2>Always MINDI is the panic warranted.

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<v Speaker 4>Look, I think with the kind of churn you have

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<v Speaker 4>seen with Meta shareholder base. I mean, remember when they

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<v Speaker 4>had the eighty percent draw down, a lot of the

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<v Speaker 4>lot people shareholders just left, They gave up.

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<v Speaker 2>And I thought this was a twenty year turnaround story.

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<v Speaker 4>And now they have new shareholders, which who may not

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<v Speaker 4>have that kind of patience, you know, in terms of

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<v Speaker 4>that long term strategy. So you want to be very

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<v Speaker 4>careful in terms of setting expectations. I think last quarter

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<v Speaker 4>they did the right thing by announcing a buyback, by

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<v Speaker 4>announcing a dividend. Yeah, and they haven't really talked about

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<v Speaker 4>capital allocation much in this release, which is what investors

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<v Speaker 4>wanted to say.

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<v Speaker 1>That's a really good point. The other thing I want

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<v Speaker 1>to say, and John, let's bring you back into this.

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<v Speaker 1>Looking at our live blog, Alex Barinka noting that the

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<v Speaker 1>total number of people using Meta's apps, so we're talking Facebook, Instagram, Whatsappen, threads,

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<v Speaker 1>rising seven percent year overy year to three point twenty

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<v Speaker 1>four billion. I mean, again, when we think about social media,

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<v Speaker 1>these guys really kind of just.

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<v Speaker 2>There's Meta and there's everyone else exactly.

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<v Speaker 1>And so as you know, men Deep was talking earlier like,

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<v Speaker 1>if you're going to do an ad spend, this is

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<v Speaker 1>kind of probably where you're going to go because this

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<v Speaker 1>is where you get the payoff. But I mean there's

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<v Speaker 1>value in that. I mean just putting aside the AD

0:11:28.320 --> 0:11:30.920
<v Speaker 1>spend and stuff that the AdSpend, the marketing spend, the

0:11:30.920 --> 0:11:34.920
<v Speaker 1>CAPEC spend, if you will, I mean that is incredible.

0:11:36.280 --> 0:11:39.199
<v Speaker 3>Yeah, and I think we have had to relearn how

0:11:39.200 --> 0:11:43.320
<v Speaker 3>to evaluate these companies. Meta doesn't get as specific with

0:11:43.559 --> 0:11:47.439
<v Speaker 3>individual platform numbers as they used to. Apple doesn't tell

0:11:47.520 --> 0:11:50.520
<v Speaker 3>us about the number of iPhones they're selling quarter to quarter.

0:11:50.840 --> 0:11:53.000
<v Speaker 3>Netflix just told us they're not going to tell us

0:11:53.000 --> 0:11:55.560
<v Speaker 3>how many subscribers they have in the future, right, which

0:11:55.600 --> 0:11:58.920
<v Speaker 3>means we're talking now about the power of the platform,

0:11:59.200 --> 0:12:03.480
<v Speaker 3>and you are appssolutely right, Carol. The advertising ecosystem around

0:12:03.559 --> 0:12:07.360
<v Speaker 3>the meta properties is extremely robust, and they have proven

0:12:07.400 --> 0:12:09.760
<v Speaker 3>to us that that is hard to break. I do

0:12:09.840 --> 0:12:12.120
<v Speaker 3>have to go back to what Tim said, though, I'm

0:12:12.160 --> 0:12:15.360
<v Speaker 3>still always curious about where the trends are taking us.

0:12:15.360 --> 0:12:17.880
<v Speaker 3>It's been a busy day on the TikTok front as well.

0:12:18.480 --> 0:12:22.520
<v Speaker 3>Without a doubt, if you're Mark Zuckerberg, you are concerned

0:12:22.679 --> 0:12:26.559
<v Speaker 3>about the levels of engagement just in the pure traditional

0:12:26.600 --> 0:12:30.120
<v Speaker 3>social media way of having the hot hand and Instagram

0:12:30.520 --> 0:12:34.480
<v Speaker 3>is getting a bit older. Facebook certainly is already there,

0:12:34.960 --> 0:12:40.280
<v Speaker 3>but breaking that model that they've built is hard to do.

0:12:40.800 --> 0:12:44.880
<v Speaker 3>And maybe that's, you know, if you've got some competition

0:12:45.320 --> 0:12:49.679
<v Speaker 3>on other social media platforms. Maybe that explains to what

0:12:49.720 --> 0:12:53.680
<v Speaker 3>Mandy was talking about earlier, why you need to continue

0:12:53.679 --> 0:12:57.600
<v Speaker 3>to put all that money into the metaverse in reality

0:12:57.679 --> 0:13:00.320
<v Speaker 3>labs part while you're also spending on AI to make

0:13:00.360 --> 0:13:03.240
<v Speaker 3>a more robust platform for your traditional social media channels.

0:13:03.280 --> 0:13:05.000
<v Speaker 2>Aman Deef, I want to give you the last word

0:13:05.040 --> 0:13:07.680
<v Speaker 2>here as you go and get ready to write your reports.

0:13:07.760 --> 0:13:09.320
<v Speaker 1>The headline on that report.

0:13:09.040 --> 0:13:12.280
<v Speaker 2>Reports reports plural later today. I know it's going to

0:13:12.320 --> 0:13:14.479
<v Speaker 2>be a late night for you. What are you thinking.

0:13:14.559 --> 0:13:19.040
<v Speaker 4>Cost discipline going away from meta question mark because you know,

0:13:19.160 --> 0:13:22.080
<v Speaker 4>to me, there's no doubt this company has a scale

0:13:22.480 --> 0:13:24.880
<v Speaker 4>and it's a juggernaut when it comes to digital ads.

0:13:25.160 --> 0:13:28.679
<v Speaker 4>It's just kind of setting the right expectations and sticking

0:13:28.679 --> 0:13:31.960
<v Speaker 4>to that. And we know Mark Zuckerberg can change and

0:13:32.160 --> 0:13:34.240
<v Speaker 4>he can execute like no one else. It's a very

0:13:34.320 --> 0:13:38.199
<v Speaker 4>nimble product team. But when it comes to managing investory expectations,

0:13:38.200 --> 0:13:41.480
<v Speaker 4>it's a different ballgame. And they've shown they can be

0:13:41.520 --> 0:13:44.000
<v Speaker 4>loosed when it comes to the capital allocation side.

0:13:44.120 --> 0:13:47.239
<v Speaker 1>Gosh, I'm just telling you. You're on the live blog.

0:13:47.040 --> 0:13:49.600
<v Speaker 4>Right, Yeah? Did you do that?

0:13:50.200 --> 0:13:54.840
<v Speaker 2>That's amazing. It sounds like they're taken from our conversation

0:13:54.920 --> 0:13:56.720
<v Speaker 2>for the live blog. Everyone check out the live blog.

0:13:56.800 --> 0:13:58.559
<v Speaker 1>Sounds like Zuckerberg needs to put a suit back on

0:13:58.640 --> 0:13:59.840
<v Speaker 1>and take off the rancher coat and silver.

0:14:00.360 --> 0:14:03.160
<v Speaker 2>I mean it's maybe well. Shares down now, Shares down

0:14:03.200 --> 0:14:06.800
<v Speaker 2>now twelve points seventy percent and up in going into

0:14:06.800 --> 0:14:07.920
<v Speaker 2>the print close to forty percent.

0:14:08.000 --> 0:14:10.120
<v Speaker 1>Yeah, so pretty much at its lows. Guys, thank you

0:14:10.160 --> 0:14:12.240
<v Speaker 1>so much, Ben Deep saying we always appreciate it, senior

0:14:12.240 --> 0:14:15.080
<v Speaker 1>tech industrial analysts at Bloomberg Intelligence, and our thanks to

0:14:15.559 --> 0:14:18.240
<v Speaker 1>John Erlichman as well. Always great in terms of his

0:14:18.280 --> 0:14:20.000
<v Speaker 1>insights on this group. He's been following it for a

0:14:20.040 --> 0:14:23.600
<v Speaker 1>long time. Bloomberg News contributor out There in Toronto shares

0:14:23.640 --> 0:14:25.520
<v Speaker 1>a Meta down almost thirteen percent.