Another Day at Meta - Fines, AI, and CAPEX

Meta, still referred to by some as "Facebook," has proven to be one of the "dark horses" of the market and the tech company segment — for another consecutive year. Most investors had written off the company as a loss back in 2022, and even hundreds of percent growth since then hasn't convinced some of them. Today, Meta is making headlines again due to leaks about the alleged reduction in spending on the "Metaverse" and due to another EU proceeding against Meta.

The "Metaverse," also known as "Reality Labs," is a personal project of Mark Zuckerberg, the company's CEO, who has unsuccessfully tried for years to convince investors of the validity of his vision. The project has been a black mark on the company's financial reports recently, consuming huge amounts of money without providing anything resembling a business model in return. Today, Bloomberg reported that Mark Zuckerberg might finally reduce spending on the project. The reduction is said to be as much as 30%, which would mean billions of dollars in savings that can now be better utilized elsewhere. This rumor has pushed Meta stock price up by 4%.

Elsewhere, of course, refers to so-called CAPEX. Like most tech companies, Meta invests huge amounts of money in cloud infrastructure/AI. In 2025, CAPEX is expected to cost Meta $65 billion, and forecasts for the year indicate even larger amounts. The relentless growth of the company's margins and revenues recently has allowed for the burning of huge sums on unprofitable projects, but the challenges posed by the AI revolution seem too costly for the company to continue supporting less promising initiatives.

However, large costs do not prevent American tech companies from routinely violating European law. The European Commission has initiated proceedings against Meta, as the company violated antitrust laws by restricting access for other companies to the "WhatsApp Business Solution." Contrary to the mistaken perception of many observers, fines have been, are, and remain severe. Meta currently faces a fine up to $16.5 billion - 10% of global revenues. If the proceedings end unfavorably for Meta, it won't be the first fine of this type the company has received from the European Commission.
It's worth noting that just under a month ago, Yann Andre LeCun was said to have left the company. As befits an American market leader, the pioneer of its AI solutions is a doctor of French origin. Dr. LeCun parted ways with Meta, claiming that the change in AI strategy "puts it on a path to nowhere". Dr. LeCun had been among the skeptics of the technology for some time, pointing out that it will never be able to achieve the level of complexity and advancement promised to investors by industry leaders. He also criticized the company's retreat from open-source solutions.

Time will tell whether quarterly growth in advertising revenues will allow Meta to realize its increasingly risky strategy in an increasingly unstable environment.

META.US (D1) 

Source: xStation5