Two months ago, just because the financial report exceeded expectations, on the evening of April 24th, it immediately fell back to the starting line. Even though $Meta Platforms, Inc.(META)$ had a comprehensive Q1 financial report that exceeded expectations, it still plummeted by 18%.
What exactly is the market dissatisfied with?
Investment points
Doubts about user base?
User scale is the basis of advertising revenue for social media companies. The company announced that starting from Q1 24, it will no longer disclose operational indicators such as DAU/MAU/MAP/ARPU, and will instead focus on the changes in ad impressions, similar to how $Netflix(NFLX)$ stopped disclosing subscriber numbers from 2025 and instead focused on monetization capabilities.
Actually, this does not mean that the user stickiness of META's social media has decreased (on the contrary, the stickiness of Facebook Family media has always been one of the highest in the industry).
This is just the company guiding investors to focus on monetization capabilities itself, and it cannot be simply considered as "poor future expectations". Do investors think that META has also "lost its growth potential"? No, the company is still investing heavily in AI.
Doubts about capital expenditures?
Due to the increase in infrastructure investments and legal costs, this year's total expenditure is between $96-99 billion, with the capital expenditure forecast for this year significantly raised to $35-40 billion, higher than the guidance two months ago of $30-37 billion, because of accelerated infrastructure investments to support the AI roadmap.
At the same time, Mark Zuckerberg also stated that he will make META into a "global leading AI company," which may require several years for the return. Investment, but the capital expenditure used for AI development is transparent, and the market is not unaware.
If doubts about profit margins in the coming quarters arise simply because of the increased capital expenditure, that is certainly not the intention of long-term investors.
The cost and expense of Q1 increased by 6% year on year, far lower than the revenue increase of 27%, so operating profit and others have reached new highs.
Doubts about revenue growth?
The revenue for the second quarter is expected to be $36.5-39 billion, with the midpoint lower than the market's consensus of $38.3 billion. It would be too forced to say this falls below expectations.
Keep in mind that Q1 revenue was $364.6 billion, while the previously announced guidance was $34.5-37 billion, almost hitting the upper limit. Because META learned to manage expectations after several major declines in 2022, the outcomes often do not turn out very poor, which is also known in the market.
Additionally, the AI tools showcased this quarter further improve advertising strategies and user engagement, which can also be verified from advertising revenue.
The commercialization progress of Reels is smooth, with the element of "favorable location." There is also the potential risk of the slowdown in growth of Chinese advertisers, accounting for 10% of the company's total advertising sales.
Take a guess on the purpose of Mark Zuckerberg switching from "pro-China" to "anti-China"?
Conservative expectations on valuations
Currently, a P/E ratio of 32x could be the main catalyst for the stock price decline, in other words, META's performance is not poor, and the long-term guidance has not changed.
For example, using the Grinold-Kroner model for valuation based on the P/E ratio, there are no significant issues with the expected growth of cash flow and profits, and the dividends and repurchases added by META this year can actually support the valuation.
Only the expectations of investors have changed, that is, the expected repricing return, which is the change in the P/E. It means investors are not willing to give this valuation premium.
Who else suffered from the plunge? Those congress members!
Buried are not only retail investors and institutions, but also congressmen.
The "ban-or-divestment" bill for TikTok has been passed, and many politicians cleverly bought into META beforehand,
Such as the bill's drafter Michael McCaul, who purchased up to $600,000 worth of META before the vote on March 26th. It can only be said that the plot to catch chickens ended up hurting the rice, as the capital markets try to trick you, regardless who you are.
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