Meta shares soared over 8% in extended trading after the social media giant delivered a Q2 earnings beat and raised its revenue outlook. The blowout quarterly performance drove a massive after-hours rally, despite continued staggering losses from CEO Mark Zuckerberg's virtual reality ambitions.
Meta reported Q2 revenue of $39.07 billion and EPS of $5.16, solidly topping expectations driven by resilient ad sales. The company issued upbeat Q3 revenue guidance between $38.5 billion and $41 billion, further fueling investor enthusiasm.
However, the massive cost of Zuckerberg's metaverse obsession still loomed large. Meta's Reality Labs virtual/augmented reality unit posted a staggering $4.48 billion operating loss in Q2. Since late 2020, metaverse investments have cost over $50 billion cumulatively with no clear path to profitability yet.
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Underscoring the lack of consumer appetite so far, Reality Labs revenue was just $371 million – up 28% year-over-year but still underwhelming. Competition is intensifying, with Apple's premium $3,500 Vision Pro headset making Meta's $499 Quest 3 VR device appear anemic.
Rather than pulling back, Zuckerberg committed to pouring more cash into the metaverse furnace. Meta maintained its lofty 2024 expense outlook between $96 billion and $99 billion, while narrowing capex guidance to $37 billion to $40 billion. The company is investing heavily in AI compute infrastructure, expecting to have 350,000 Nvidia H100 chips worth around $40,000 each deployed by year-end.
Meta released its open-source Llama 3.1 AI model with up to 405 billion parameters to spur metaverse development. However, the company stated no plans to commercialize Llama or sell enterprise AI services, suggesting monetization remains an abandoned oasis.
For investors, Meta represents a classic high-risk, high-reward trade-off. The resilient ad business is still printing cash to bankroll Zuckerberg's $50 billion-and-counting virtual reality gambit. But that compounding drain poses existential risks if the metaverse frontier remains fallow. Lack of future revenue would impair overall profits while competition like Apple intensifies.
Meta is making an annual multi-billion dollar longshot bet that the metaverse gold mine will one day get uncovered. While Zuckerberg sees long-term rewards, the ballooning Reality Labs losses are an onerous interim burden obscuring current financials.
The after-hours euphoria shows investors are willing to discount the metaverse abyss for now. But that patience and optimism will be tested if the virtual world's promised riches don't start materializing on Meta's income statement soon.
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