Meta’s Q3 Earnings Disappoint Investors — Expect Further Losses for Reality Labs

Key Takeaways

• Meta posted better-than-expected earnings on Wednesday, Oct. 30.
• However, runaway spending has investors spooked.
• Massive investments in AI infrastructure are adding to Meta’s expenses.

Meta delivered relatively strong quarterly results  on Wednesday, Oct. 30. But shares fell in overnight trading after the firm said spending was set to rise.

Citing major investments in AI infrastructure and the loss-making Reality Labs, CFO Susan Li told investors to expect operating expense and capital expenditure to rise significantly in 2025.

Meta’s Spending Outlook

From a previous range of $96-99 billion, Li updated Meta’s full-year expense outlook to $96-98 billion. Meanwhile, the capital expenditure outlook for the year was updated from $37-40 billion to $38-40 billion.

Looking ahead to 2025, she noted that Meta expects “significant” capital expenditure growth as the company accelerates its infrastructure development.

Along with investing in infrastructure to support its expanding AI business,  the firm’s metaverse division, Reality Labs, is another source of rising costs.

Reality Labs Losses

In the three months to September, Reality Labs incurred $4.43 billion of losses, up more than 18% from the same period in 2023.

Moreover, “we continue to expect 2024 operating losses to increase meaningfully year-over-year due to our ongoing product development efforts and investments to further scale our ecosystem,” Li observed.

After years of research and development, however, the division is starting to generate more income. Year-over-year, quarterly revenues were up 19%, just outpacing the rate at which its losses have grown.

Turning to Reality Labs’ recent successes, CEO Mark Zuckerberg highlighted a strong demand for Meta’s smart glasses. 

“I continue to think that glasses are the ideal form factor for AI,” he observed, “because you can let your AI see what you see, hear what you hear, and talk to you.”

Meta Shares Slide in After-Hours Trading

Despite surpassing revenue expectations, Meta shares fell slightly in after-hours trading, declining nearly 1% following Wednesday’s earnings call. 

While concerns over rising expenses may have spooked investors, declining user growth is another factor weighing on Meta’s stock price.

The company reported 3.29 billion daily users, up 5% from a year ago but still fewer than many analysts had expected.