Latest / Bloomberg Intelligence / Earnings Special: Meta Boosts Bet on AI With Spending Outlook, New Stock Class

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Earnings Special: Meta Boosts Bet on AI With Spending Outlook, New Stock Class · Bloomberg Intelligence

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  Speaker 1: Bloomberg Audio Studios.
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  Speaker 2: Podcasts. Radio.
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  Speaker 1: News.
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  Speaker 2: This is a breaking news update from Bloomberg. Instant reaction
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  Speaker 2: and analysis from our 3,000 journalists and analysts around the world.
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  Speaker 3: Meta shares already bouncing around in the aftermarket. The company
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  Speaker 3: just out with its earnings. Here are the red headlines
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  Speaker 3: on the Bloomberg. Let's get to Outlook. Meta seeing fourth
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  Speaker 3: quarter revenue $ 73 billion to $ 76 billion. Folks, that is
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  Speaker 3: above estimates of $ 73.
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  Speaker 2: 57 billion.
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  Speaker 3: The company also establishing a new non-voting class, C Common Stock.
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  Speaker 3: There was early reports, was it from Semaphore.
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  Speaker 2: That talked about this? Yeah, 320 today. Yeah, exactly. Just
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  Speaker 2: hit it. We've got what?
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  Speaker 3: I'm looking at Meta right now up about 1.5% here
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  Speaker 3: in the aftermarket. Lots more metrics to come, though, on
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  Speaker 3: this one, so we're going to keep a watch on it.
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  Speaker 2: Yeah, Meta lifting its expense outlook to incorporate a $ 9. 9
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  Speaker 2: billion legal charge. The company sees fiscal year CapEx 135
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  Speaker 2: to 145. billion. So it narrowed that range because it
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  Speaker 2: earlier saw 130 to 145. That's now a redhead, just
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  Speaker 2: after I mentioned that. Again, the fiscal year capex, 135
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  Speaker 2: to 145 billion, it saw 130 to 145 billion. So
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  Speaker 2: it makes sense that as we get further along in
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  Speaker 2: the fiscal year, The company also sees total expenses, $ 175
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  Speaker 2: billion to $ 179 billion. So that's an increase because earlier
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  Speaker 2: it saw $ 165 billion to $ 169 billion. Shares are off
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  Speaker 2: their best levels post-earnings as investors continue to digest this
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  Speaker 2: after hours. Okay, let's bring in Ed Ludlow because he
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  Speaker 2: knows about all this stuff. Ed is joining us from
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  Speaker 2: San Francisco. He's the host of Bloomberg Tech on Bloomberg Television. Ed, thanks.
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  Speaker 2: I wanted to start with Meta right now. What are
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  Speaker 2: your highlights from this? Because certainly some of this was
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  Speaker 2: priced in, but we're seeing a narrowing of an understanding
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  Speaker 2: of how much it's going to spend on CapEx and
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  Speaker 2: its overall expenses climbing. There's a legal charge in there.
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  Speaker 2: What are your highlights?
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  Speaker 1: Okay, that's a really good summary. I'll just go through
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  Speaker 1: it really rapidly. So revenue of $ 64. 2 billion is up 26%
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  Speaker 1: year over year. It's a bit of expectations, but for Meta,
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  Speaker 1: as a moment in time, it's their highest revenue in
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  Speaker 1: a quarter ever. You've exactly nailed it on EPS. So
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  Speaker 1: they took a charge in the quarter of about $ 10 billion.
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  Speaker 1: And if you excluded that charge, so basically on a
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  Speaker 1: non-gap adjusted basis, EPS would be $ 7. 40. Taking the charge
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  Speaker 1: into account, it's $ 3. 57. And the CapEx range is just
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  Speaker 1: like we're well through the year. And it's narrow, $ 35
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  Speaker 1: billion to $ 145 billion on the CapEx side. Though if
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  Speaker 1: you were like an old school Bloomberg editor, you would
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  Speaker 1: say that adjusts the midpoint of the CapEx expectation, which
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  Speaker 1: against consensus is kind of fun if you're one of
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  Speaker 1: those nerdy accounting guys. I apologize to those listening to
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  Speaker 1: this program if you are. And then there's the Class
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  Speaker 1: C stock. Do you guys want to talk about that?
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  Speaker 2: I want to talk about that in a second. Before
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  Speaker 2: we do that, though, I want to talk about the
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  Speaker 2: top line number because it does seem like people are
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  Speaker 2: still buying ads and Meta is getting much better at
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  Speaker 2: targeting those ads. That's this business. That is the business
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  Speaker 2: of Meta still. No matter how much it talks about AI,
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  Speaker 2: that is still its business.
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  Speaker 1: I mean, literally in how it discloses its financials, it
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  Speaker 1: is the bulk of revenue. And so the question has
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  Speaker 1: always been, for all of the work at the frontier,
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  Speaker 1: and Meta still kind of needs to evidence that it
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  Speaker 1: is at the frontier from an AI model perspective, how
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  Speaker 1: does that improve monetization and ARPU, average revenue per user,
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  Speaker 1: on the outside? How does AI make ads more valuable?
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  Speaker 1: And at the end of the day, the advertising story
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  Speaker 1: is just very strong. It's pricing, it's not volume, and
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  Speaker 1: that's doing the heavy lifting.
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  Speaker 3: Meta seeing reality losses of $ 18 billion and $ 19 billion
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  Speaker 3: in 2026, fourth quarter tax rate between 15% and 17%.
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  Speaker 3: I want to go to this thing, though, because increasingly
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  Speaker 3: Meta is dealing with a lot of serious litigation.
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  Speaker 2: But it doesn't hit the stock. Well, sometimes it does.
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  Speaker 3: Meta says it still sees scrutiny on youth-related issues globally. Like,
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  Speaker 3: there's still a lot legally coming at this company, MetaEd.
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  Speaker 3: And we know in the past they've even talked about
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  Speaker 3: having a material impact. Does it matter? I mean, are
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  Speaker 3: they making it up enough elsewhere that it doesn't matter
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  Speaker 3: how much this litigation ultimately costs them? Or no, this
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  Speaker 3: is still a serious issue for them.
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  Speaker 1: So I would say that Meta has disclosed in multiple
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  Speaker 1: quarters to this point that the language that youth legal
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  Speaker 1: challenges could significantly impact results going forward It's been there
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  Speaker 1: in the boilerplate for some time. It's funny, like I
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  Speaker 1: was talking to Riley Griffin about exactly this, you know,
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  Speaker 1: when the numbers hit and on the message, we like,
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  Speaker 1: you know, we had to talk about that one-time charge
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  Speaker 1: that hurt EPS in the quarter. There is the Cambridge
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  Speaker 1: Analytica headline I think you guys hit from earlier in
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  Speaker 1: the day. Like all of this is happening contemporaneously. But
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  Speaker 1: Meta has guided investors on its impact, you know, on
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  Speaker 1: a forward-looking basis.
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  Speaker 2: Ed, we didn't get to the dual-class share structure. And
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  Speaker 2: there's some information... additional information about what Meta says about
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  Speaker 2: the non-voting stock. The board has approved a new class
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  Speaker 2: of publicly listed non-voting Class C common stock with an
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  Speaker 2: effective date in January, 2027. The goal is to quote,
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  Speaker 2: provide Meta the ability to finance its growth and help
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  Speaker 2: the company remain a leader among fierce competition, both domestic
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  Speaker 2: and international. How does this change in stock structure help
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  Speaker 2: Meta at a competitiveness level?
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  Speaker 1: Okay, so there's the simple mechanism of offering shares to
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  Speaker 1: raise money, and they were pretty clear, like they spend
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  Speaker 1: it on M & A, AI talent, general corporate purposes, right?
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  Speaker 1: Put that to one side. How does this relate to
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  Speaker 1: Mark Zuckerberg, who economically, through his class A and class B,
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  Speaker 1: has I think about 14% of the company, but from
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  Speaker 1: a voting power perspective, he owns 99.8% of the class
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  Speaker 1: B shares. Through this mechanism, there's one class C share,
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  Speaker 1: for every A or B share, effectively it works like
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  Speaker 1: a two for one stock split. Again, how does this
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  Speaker 1: impact Mark Zuckerberg? He does not get diluted, but I
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  Speaker 1: think what's happening in parallel here is that this is
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  Speaker 1: also a mechanism for the board to do what they
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  Speaker 1: would call a founder-led agreement, where they're like, Mark, you're
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  Speaker 1: super important to us, And the things that are going
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  Speaker 1: well at Meta right now, namely on the AI side,
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  Speaker 1: you need to be with us. You've got to stay
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  Speaker 1: with us for the ride. So if you go through
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  Speaker 1: some of the regulatory filings that are coming out in parallel,
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  Speaker 1: this is as much about Meta creating non-voting stock to
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  Speaker 1: give it kind of equity currency in the AI era
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  Speaker 1: without impacting Mark's control so he can go out and
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  Speaker 1: continue to lead the company. That is my sum of
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  Speaker 1: what I think they're doing here.
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  Speaker 3: But maybe lead the company not from California. He did
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  Speaker 3: put out that he may relocate from California. Proposition 40 passes.
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  Speaker 3: Proposition 40 passes. I want to bring that into the discussion.
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  Speaker 3: There's another headline that I'm not providing. Fiscal year 2027
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  Speaker 3: revenue outlook, which seems important. So take your pick here.
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  Speaker 3: What we need to know here about all of this stuff.
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  Speaker 1: Okay, well, Prop 40 in California and on the ballot
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  Speaker 1: is a proposal for a one-time 5% tax on billionaires.
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  Speaker 1: And it would basically impact him because he is a
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  Speaker 1: billionaire and he is resident of California. And he is
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  Speaker 1: weighing into the issue. He is saying if Prop 40 passes,
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  Speaker 1: in other words, that measure goes through, he could relocate
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  Speaker 1: from California The story's just hitting. Sorry, guys. This is
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  Speaker 1: really hard. His point... No, that's okay.
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  Speaker 3: No, no, no.
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  Speaker 1: His point, according to the company, is that because of
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  Speaker 1: his wealth, the makeup of it, how it's structured on equity,
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  Speaker 1: the level of it, he would be liable for billions
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  Speaker 1: of dollars in tax payments if that were to go through.
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  Speaker 1: And so a part of this whole Class C thing,
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  Speaker 1: it reads to me, is that this special committee of
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  Speaker 1: the board in doing that action is trying to, I
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  Speaker 1: don't know, get ahead of it, but I'm just reading
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  Speaker 1: the filing. So it's a warning in the regulatory filing
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  Speaker 1: that he may move his primary residence. But the same
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  Speaker 1: filing talks about what I was going over a minute ago,
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  Speaker 1: that a big part of the Class C, separate from
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  Speaker 1: the Prop 40 warning, is to keep Mark Zuckerberg in
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  Speaker 1: place in his role, but specifically in place at the
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  Speaker 1: headquarters in California, leading the company in person. That's kind
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  Speaker 1: of the link between those two. Fascinating. Yeah. That was fun.
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  Speaker 2: Okay, Ed. You got me thinking about an interview or
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  Speaker 2: a question that you posed to Jensen Wong a long
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  Speaker 2: time ago, actually. And I think for me it was
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  Speaker 2: the first time, he's been asked this since then, but
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  Speaker 2: to me it was the first time I heard him
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  Speaker 2: respond about this. And it was about the wealth tax
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  Speaker 2: in California. Jensen Wong, among the wealthiest people in the world,
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  Speaker 2: his wealth tied up in a stock of a single
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  Speaker 2: company that he founded, like Mark Zuckerberg. What did he
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  Speaker 2: tell you about his response to Prop 40, and how
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  Speaker 2: is it different than what we're hearing in its regulatory filing?
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  Speaker 1: What I would just point out, according to Bloomberg's measure,
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  Speaker 1: Mark Zuckerberg is the fifth richest person in the world.
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  Speaker 1: When I asked Jensen Wang on January the 6th of
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  Speaker 1: this year, he looked at me with a blank expression
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  Speaker 1: and honestly was like, why would you even ask me that?
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  Speaker 1: I haven't thought one bit about it. And the next morning,
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  Speaker 1: by the way, every newspaper on earth had written up
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  Speaker 1: that interview, that question about the billionaire's tax. But he
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  Speaker 1: looked at me and was basically like, I am very
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  Speaker 1: happy to pay taxes. Pay taxes in California, pay taxes
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  Speaker 1: in the United States. He credits the academic institutions in
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  Speaker 1: California for the talent pipeline that is there. His own
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  Speaker 1: experience of being the American dream. And he reflected on
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  Speaker 1: the idea that lots of his employees are in California.
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  Speaker 1: So at that time, whatever the measure was that was
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  Speaker 1: being discussed, he's happy to pay taxes. And he's since
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  Speaker 1: been asked about it a few times, right? And I
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  Speaker 1: think his answers have been quite consistent with what I
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  Speaker 1: just outlined.
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  Speaker 2: Well, it's... Well, you know, Mark Zuckerberg has this more
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  Speaker 2: than $ 100 million compound on Indian Creek in Florida that
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  Speaker 2: he's already bought.
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  Speaker 3: Yeah.
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  Speaker 1: Zuckerberg, yeah. That was in the news headlines.
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  Speaker 2: Well, is he going to be homeless? Well, no.
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  Speaker 1: Guys, he has the cattle ranch in Hawaii that he
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  Speaker 1: spends all his time at. Yeah.
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  Speaker 3: I'm just saying, listen, I don't want to be saucy
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  Speaker 3: here and get into trouble. But I just think, you know,
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  Speaker 3: we've had these conversations about you talk to some really
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  Speaker 3: wealthy people and they say, you know what, I get it.
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  Speaker 3: You know, income and wealth and how things are taxed,
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  Speaker 3: it's different. And so understand contributing more to society. I
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  Speaker 3: always think about a podcast where a very wealthy individual
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  Speaker 3: outside the United States talked about, I don't want to
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  Speaker 3: be rich in a poor country. And I keep, that
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  Speaker 3: just stays with me. And so... I don't know. I
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  Speaker 3: find what Jensen had to say super refreshing. Listen, we're
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  Speaker 3: going to continue watching Meta at top of mind for
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  Speaker 3: you as we get ready for the call. Is this
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  Speaker 3: a good read on AI? Is this a good read
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  Speaker 3: on Meta in terms of what we got, the results?
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  Speaker 3: And what would you, what's top of mind here?
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  Speaker 1: So like CapEx for this year narrowed, right? The range
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  Speaker 1: 135 billion to 145. It's highly unlikely they're going to
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  Speaker 1: give some kind of very detailed picture for 27. Like that,
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  Speaker 1: you know, that we might find out at the end
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  Speaker 1: of the year. But what they said in the statement
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  Speaker 1: was kind of weird. Like, they didn't give any guidance
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  Speaker 1: for the top line for next year, but basically said, like,
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  Speaker 1: things are looking really good. So you'd imagine that they
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  Speaker 1: would get some questions about that. I think just purely
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  Speaker 1: in reaction to this confusing situation with the Class C shares,
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  Speaker 1: you know, the regulatory filing, which came out after the
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  Speaker 1: press release, has linked this position on Prop 40... to
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  Speaker 1: the board's efforts to keep Mark Zuckerberg in place. I
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  Speaker 1: think I did a good job explaining that link, but
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  Speaker 1: people inevitably will want to understand that as opposed to
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  Speaker 1: just issuing stock to raise capital. I don't think it
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  Speaker 1: is that. I think it's a part of a plan
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  Speaker 1: to keep Mark engaged as the leader of the company
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  Speaker 1: for a long time. Yeah.
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  Speaker 2: So, Ed, before we let you go, Meta's not providing
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  Speaker 2: a fiscal year 2027 revenue outlook. From what we heard
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  Speaker 2: about the company's CapEx spend... What we understand about cash flow, too,
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  Speaker 2: with this increased spending. Is this a sign that the
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  Speaker 2: AI trade is intact?
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  Speaker 1: But the thing is, like, negative free cash flow, Meta's
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  Speaker 1: kind of held the hand of the market to that.
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  Speaker 1: And when it happened to Amazon, no one batted an eyelid.
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  Speaker 1: When it happened to Oracle, everyone freaked out. like it
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  Speaker 1: was 1992, because I think that was the first time
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  Speaker 1: it happened since 1992. But yeah, people seem to just
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  Speaker 1: not really worry about that if you have the revenues
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  Speaker 1: and balance sheet of those companies at Amazon and Meta's scale.
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  Speaker 3: Man, just a lot of moving parts to this one.
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  Speaker 3: Ed Ludlow, you did explain it really well. And I
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  Speaker 3: am very much like most people eager to hear what...
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  Speaker 3: Mark Zuckerberg and team have to say on that call
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  Speaker 3: with analysts.
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  Speaker 1: All right.
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  Speaker 3: He is Bloomberg Tech host Ed Ludlow in our San
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  Speaker 3: Francisco bureau.