Meta’s AI Plans, Southwest’s Losses, and Amazon’s Book Sales
Editor’s Note: Awwww yeah… It’s Friday again!
Meta’s AI Spending Plans Spook Investors
Shares of Facebook parent Meta Platforms (NSDQ: META) plunged this week after the company announced it plans to “invest aggressively” in artificial intelligence (AI) initiatives.
On Wednesday, the social media giant announced that it intends to up its full-year capital expenditure to $35 billion to $40 billion — the previous guidance called for $30 billion to $37 billion — in order to build AI-supporting infrastructure.
“We expect capital expenditures will continue to increase next year as we invest aggressively to support our ambitions AI research and product development efforts,” a Meta statement said.
In addition, CEO Mark Zuckerberg chimed in on an earnings call with investors, saying that he wants to make Meta “the leading AI company in the world.”
That means spending “meaningfully before we make much revenue from some of these new products… On the upside, once our new AI services reach scale, we have a strong track record of monetizing them effectively.”
Hmm… What about Zuck’s other pet project, the Metaverse? Zuckerberg has plunged billions of dollars into Meta’s efforts to build an online world where people can hang out with friends, attend “live” events, and spend real money on virtual goods and services.
But as you might have noticed, the Metaverse has yet to become the next big thing.
And that means Meta — which changed its name due to Zuckerberg’s Metaverse dreams — has lost billions of dollars on these projects.
Will Meta’s AI dreams translate to more lost cash as it bids to compete with AI giants such as Microsoft (NSDQ: MSFT) and Alphabet’s (NSDQ: GOOGL) Google?
That question has spooked the markets this week… despite Meta’s reports of a better-than-expected first quarter.
For the quarter, Meta reported earnings per share (EPS) of $4.71 on revenue of $36.46 billion. Wall Street analysts had been expecting EPS of $4.30 on revenue of $36.12 billion. In the year-ago quarter, Meta saw earnings of $2.20 per share on revenue of $28.65 billion.
However, the company’s sales estimates for the second quarter came in below analyst expectations. Meta said that it expects sales to fall between $36.5 billion and $39 billion. Although the midpoint, $37.75 billion, would represent a roughly 18% year-over-year increase, it’s lower than the average analyst estimate of $38.3 billion.
Southwest Reports Deeper-Than-Expected Loss for Q1
Yesterday, Southwest Airlines (NYSE: LUV) reported a wider-than-expected first-quarter loss and lowered its growth estimate for the year.
According to the airline, it now expects to grow capacity by just 4% this year, versus an earlier estimate of 6%. The company also reported that it expects growth of 8% to 9% in the second quarter, with a revenue decline of as much as 3.5%.
These decreases are expected to come courtesy of troubled planemaker Boeing (NYSE: BA). According to Southwest, it expects to receive delivery of only 20 Boeing 737 Max 8 jets, versus an earlier expectation of 46 new planes.
Southwest also expects to lay off 2,000 employees in 2024 and stop service at a number of airports, including Cozumel Intl. Airport, which is a popular destination for tourists to Mexico’s Caribbean region, as well as George Bush Intercontinental in Houston.
“Achieving our financial goals is an immediate imperative,” Southwest Bob Jordan said in a company statement. “The recent news from Boeing regarding further aircraft delivery delays presents significant challenges for both 2024 and 2025. We are reacting and replanning quickly to mitigate the operational and financial impacts while maintaining dependable and reliable flight schedules for our customers.”
To say that Southwest has been affected by the quality-control issues at Boeing is an understatement. The company’s fleet is made up entirely of Beoing 737 jets.
That fact led the carrier to report an adjusted loss per share of 36 cents, versus analyst estimates of a 34-cent loss. In addition, Southwest reported revenue of $6.33 billion, versus the expected $6.42 billion.
Tesla to Produce Affordable EVs in 2025
Shares of Tesla (NSDQ: TSLA) rose this week after CEO Elon Musk indicated the company plans to start building more affordable electric vehicles (EVs).
According to Musk, the automaker will begin production on the EV models by early 2025. Earlier announcements had indicated that production of the new models wouldn’t begin until the second half of 2025.
The comments came at the right time, given that they were made during an earnings call that would otherwise prove disappointing.
Tesla reported a year-over-year revenue drop of 9% for the first quarter, to $21.3 billion. That’s the steepest annual revenue drop the company has reported since 2012. That figure also came in lower than the $22.15 billion in revenue analysts had been expecting.
In addition, the EV company reported adjusted earnings per share (EPS) of 45 cents — falling short of the consensus expectation of 51 cents per share, according to LSEG.
Beyond the new projected production start date, Tesla hasn’t revealed any details about the upcoming affordable models. This is uncharacteristic for the company, which has become infamous for touting design concepts years in advance of a model’s actual production.
A cynical observer would wonder whether there are actual concrete plans to start production on these vehicles next year, and if Musk’s announcement was primarily a distraction to deflect attention from Tesla’s disappointing first quarter.
Well… if so… it worked. Tesla shares shot up by more than 10% following the news.
On the whole, though, the company has had a rough year. Since the start of 2024, Tesla shares have shed more than 35% of their value.
In fact, Tesla is the worst-performing member of the group of tech stocks known as the Magnificent Seven — which also includes Alphabet (NSDQ: GOOGL), Amazon (NSDQ: AMZN), Apple (NSDQ: AAPL), Meta Platforms (NSDQ: META), Microsoft (NSDQ: MSF), and Nvidia (NSDQ: NVDA). Along with Apple, it’s the only Magnificent stock to have fallen into the red year to date, let alone underperform the S&P 500.
Wall Street is divided on Tesla’s near-term prospects. This week, Bank of America (NYSE: BAC) analysts wrote that Musk’s remarks “revitalized the growth narrative” for the EV maker, leading the team to upgrade the stock from “Neutral” to “Buy.”
“In the near term, the tide in news flow appears to suggest the risk to the stock is skewing more positively,” they wrote in a note.
However, analysts at UBS (NYSE: UBS) lowered their price target for Tesla shares from $160 to $147. “Increasingly, TSLA is a play on autonomy, and while progress is being made, we are cautious on near-term viability,” they wrote.
“We see limited growth for [the] current lineup and [a] lack of clarity on what these ‘new vehicles’ could bring.”
Yes, Amazon Still Sells Books
It’s been nearly 30 years since Jeff Bezos founded Amazon (NSDQ: AMZN) in his Washington state garage.
Originally, the company was an online marketplace for books. And although there have been a lot of changes over the last three decades — with Amazon getting involved in every business from streaming entertainment to groceries, to healthcare — books are still a big seller on the e-commerce platform.
According to a recent Statista Consumer Insights survey, 71% of U.S. adults said that they had bought at least one printed book from Amazon in the past 12 months.
That makes the U.S. Amazon’s biggest book-buying market, followed by the United Kingdom (68%) and Italy (66%).
Take a look:
You will find more infographics at Statista
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