Meta forecasts revenue above estimates while cautioning about growing Reality Labs losses

Facebook parent company Meta on Wednesday forecast December quarter revenue above market expectations, while cautioning investors that it expects operating losses for its Reality Labs division to "increase meaningfully" during the period.

Meta's Reality Labs division is responsible for the company's virtual reality, augmented reality, artificial intelligence and mixed reality projects, as well as research and development into emerging immersive technologies such as the metaverse.

The unit reported an operating loss of more than $4.4 billion in the third quarter that ended on September 30. It expanded from $3.7 billion operating loss in the same period last year.

The division’s losses are expected to surge further due to its continuing product development efforts and investments to further scale the company's ecosystem, chief financial officer Susan Li said.

Since 2020, Reality Labs unit has recorded an operating loss of more than $58 billion.

The company projects its October-December revenue to be between $45 billion and $48 billion, compared to analysts' estimates of $46.3 billion. Its guidance assumes that fluctuations in foreign currency exchange rates will have little to no impact on its year-over-year revenue growth, Ms Li said.

The company also updated its 2024 full-year total expense forecast to a range of $96 billion to $98 billion, down from its prior expectation of $96 billion to $99 billion. The full-year capital expenditures will be in the range of $38 billion and $40 billion, Meta said.

“We continue to expect significant capital expenditures growth in 2025 … we expect a significant acceleration in infrastructure expense growth next year as we recognise higher growth in depreciation and operating expenses of our expanded infrastructure fleet,” Ms Li said.

Meta's shares, which closed at $591.8 on Wednesday, dropped 2.3 per cent to trade at $577.9 a share in after-hours trading.

The stock has gained about 70.9 per cent so far this year and the company had a market value of about $1.5 trillion at close on Wednesday.

Earnings beat expectation

The company reported a 35 per cent annual increase in third-quarter net income to almost $15.7 billion.

Revenue during the July-September period rose 19 per cent to more than $40.5 billion, beating analysts’ expectations of $40.2 billion. Earnings per share stood at $6 against the expectation of $5.2

"Meta is firing on all cylinders and AI is clearly driving growth … not only did Meta exceed expectations for both earnings per share and revenue, but it did so by a wide margin, as the tech giant delivered its most profitable quarter on record,” Jesse Cohen, senior analyst at Investing.com, told The National.

"Meta’s solid quarter adds further evidence to the view that digital advertisers are choosing to spend their budget on the so-called market leaders, such as Facebook and Instagram.”

In the third quarter, advertising impressions across Meta’s family of apps and the average price for an advertisement soared by 7 per cent and 11 per cent year on year, respectively.

Meta’s family of apps includes Facebook, Instagram, Messenger and WhatsApp.

From April, Meta has stopped disclosing Facebook’s daily active users and monthly active users. It is now sharing a figure called “family daily active people”.

It stood at 3.29 billion in the last quarter, a yearly increase of almost 5 per cent.

“We had a good quarter driven by AI progress across our apps and business … we also have strong momentum with Meta AI, Llama adoption and AI-powered glasses,” said Mark Zuckerberg, Meta founder and chief executive.

The company's advertising revenue contributed nearly 98.2 per cent to overall sales in the third quarter, growing by about 18.5 per cent on an annual basis to more than $39.8 billion.

Revenue from other streams – including the Reality Labs unit – jumped 16.7 per cent on an annual basis to more than $704 million.