Meta Platforms Stock Dips Despite Strong Q3 Earnings Beat Due to Tax Charge and Increased Spending Guidance

Meta Platforms, the parent company of social media giants Facebook and Instagram, announced its third-quarter financial results, comfortably beating market expectations. The company reported a revenue of $51.24 billion, exceeding the consensus estimate of $49.41 billion, and achieved its first-ever quarterly revenue above $50 billion. Earnings Per Share (EPS) also surpassed expectations.

Despite the strong financial performance, Meta's stock fell up to 9% in extended trading. This downturn was primarily triggered by a one-time, non-cash income tax charge of up to $16 billion, stemming from recent US tax legislation. While this charge impacts current reporting, Meta noted it will lead to a significant reduction in its future cash tax payments.

Another factor influencing the stock's decline was the company's increased capital expenditure (Capex) guidance. Meta raised the lower end of its Capex forecast to $70 billion from $66 billion, expecting to spend between $70 billion to $72 billion. Expenses guidance also saw an increase, with the lower end raised to $116 billion from $114 billion.

The company's Reality Labs division, focused on metaverse hardware, reported a loss of $4.4 billion on sales of $470 million in the third quarter. CFO Susan Li indicated that Q4 Reality Labs revenue would be lower year-over-year, despite growth in AI glasses, due to headwinds affecting Quest headsets.

On the positive side, Meta's core advertising business performed exceptionally well, with sales reaching $50.08 billion, higher than the estimated $48.5 billion. Daily active users across its platforms also grew to 3.54 billion, slightly above the 3.5 billion estimate. The company also recently entered a joint venture with Blue Owl Capital for a $27 billion data center project.

Impact: This news could affect investor sentiment towards major technology companies globally, influencing investment decisions in the sector. The increased spending guidance might signal aggressive future investment in AI and the metaverse, while the tax charge highlights the financial implications of geopolitical tax policies. Rating: 6/10.

Difficult terms: * Earnings Per Share (EPS): This is a company's net profit divided by the number of its outstanding shares. It's a key indicator of profitability. * Extended trading: This refers to trading activity that happens after the stock market officially closes for the day. * Non-cash income tax charge: This is a tax expense that is recorded in a company's financial statements but does not involve an actual outflow of cash in the current period. * Capital expenditure (Capex): This is the money a company spends to acquire, upgrade, and maintain its physical assets, like buildings, equipment, and infrastructure. * Revenue: This is the total amount of income generated from a company's primary business activities, such as selling goods or services, before deducting any expenses. * Headwinds: These are factors that create difficulties or slow down a company's growth or progress. * Year-over-year (YoY): This is a method of comparing performance data from the current period to the same period in the previous year to assess growth or decline. * JV (Joint Venture): This is a business arrangement where two or more companies agree to pool their resources for a specific project or business activity. * Quest headsets: These are virtual reality (VR) headsets developed by Meta Platforms. * AI glasses: These are smart glasses that incorporate artificial intelligence features.