Meta’s Big Earnings Report… Plus Tesla Charges Higher After Results 4/24/24

0:01Live from the Nasdaq market site in the heart of New York City's Times Square.

0:16This is Fast from Ford to Chipotle to IBM. We're digging into all of tonight's results and bringing you the trades. And later, believe the balance? Shares of Tesla putting in their best day since January of 2022, even after an earnings report that left many pretty unimpressed, to be honest about it. Is this a sign that the EV maker can get back on track, or will a different reality set in for the stock? I'm Courtney Reagan in this evening for Melissa Lee, coming to you live from Studio B at the NASDAQ. On the desk tonight, we have Tim Seymour, Karen Feinerman, Dan Nathan, and Guy Adami. And we start off with Meta.

0:54Shares plunging 11-plus percent after the company gave weak revenue guidance for the year. It also said CapEx would be higher than expected. That news overshadowing a beat on the top and bottom lines. If the losses hold tomorrow, it would be Meta's worst drop since October of 2022. Julia Borsten joins us now to dig into the details. Julia, what else stands out to you? Well, Courtney, those better-than-expected top and bottom line results were very much outweighed by that lighter than expected second quarter revenue guidance, as well as higher than expected expense guidance. I just spoke to Meta's CFO, Susan Lee.

1:27She told me that the higher CapEx guidance reflects larger than planned investments in AI, including both in GPUs as well as in data centers. She also told me that the company's higher total expense range is partially due to legal expenses. And she noted that Meta's investments in AI do continue to pay off and were reflected in the revenue growth that we saw stronger than expected revenue growth we saw in the first quarter. Now, as for the company's lighter than expected second quarter revenue guidance, Lee telling me, quote, what our outlook is reflecting is that we are really lapping a period of both stronger demand, in particular from China-based advertisers.

2:05Now, the call is just starting now. We are sure to hear a lot more about the impact of AI and also some questions about the cost of those AI investments. Courtney? That's really interesting context, Julia. Thank Thank you so much for bringing it to us. I know you need to jump to get on the call. I mean, Guy, what do you make of these results? I think that's an interesting point from Julie. Isn't a larger investment than planned in AI a good thing? Quarter was, I think, very good. I mean, we'll run through it real quick. Revenue is up 27 % year over year. Margins were up 13 basis points year over year.

2:33I mean, EPS was a significant beat. You know, CapEx came in pretty much in line. There's a lot to like here. It's the guidance. And if you think about it, there are 8 billion people on the planet. 3.2 billion use Facebook every single day. I mean, clearly the catbird seat. Here's the problem. The guide, number one. And the technicals, number two. And I don't want to get too wonky here. But an open below 450 tomorrow. And there's going to be some technical damage. So it's not a question of where do I sell the stock. It's a question of how much pain do I have to endure before I either add to my long position or get in altogether.

3:06And that's going to be the rub tomorrow, given the levels of trading at right now. Dan, what's your reaction to these results? Yeah, I think it's a matter of expectations. coming into the quarter, expectations were up, earnings year over year, up 114 % or something like that. So they kind of hit that. The stock was up 40 % into that. Sales expectations were up 35%, 40 % or something. This is quarter year over year. So the comps were the problem here. The whisper number, I think, got a little bit ahead of things. And I just think it's kind of a theme that we're seeing. I think we can take Tesla and its performance today out of it.

3:38Expectations were really low. It wasn't even a good quarter. It wasn't a good guide. It was just a lot of qualitative comments about their business going forward that caused a short squeeze. Here's a situation where I think investors are kind of pricing, is this as good as it gets for a little bit, especially in the market environment that we're in? And then if you kind of just kind of put the rate thing into the picture, I think valuation is coming back into the conversation as it relates to mega cap tech. That's a good point. I mean, Tim, it's had such a run when you look at shares of meta. Does 11 % feel overdone or does it feel like this is the time to take some profit if this is as good as it gets?

4:09Well, this is a massive move. We've seen this company have a couple of nasty quarters in the past and not so not so distant past. But but this kind of a move is probably warranted given the kind of move it's had. I mean, it's it's outperformed the S &P not by a little bit. I mean, it's up 30 percent, you know, 35 percent year to date versus the S &P's five. It was up one hundred ninety three percent last year versus the S &P's 24. So so the outsized performance of this company is is a function of a lot of things. It's it's including the year of efficiency. It sounds like it's not going to be the year of efficiency going forward.

4:40So we can put some of that dynamic in the background. But I agree. Spend on AI should be good. I think the risk reward into the print, obviously, now it's easy to see this, wasn't that great. I think the risk reward for this company in the medium to long term is fantastic. I think the growth even for 24, if you look at Consensus Street, it's saying 17%. Guy pointed out how much they've grown year over year. I think it's a very conservative, actually, growth outlook for a company that's trading at roughly 10 times EBITDA for next year. So I think they're going to have a way to work themselves back.

5:09Dan brings up the technicals. I mean, there's there's some elements of this chart or a guy mentioned the technicals. You've got to you know, there's a big backfill that you could potentially say on this on this company. And again, this was one of the very, very, I would say, seemingly bulletproof names in mega cap tech because of this multiple. And I think this will be a pause on some level for people to look at a Nasdaq that struggled. It's had a good couple of days. But really, you know, you look at those triple Qs and we brought this up if it was last Friday afternoon when we were closing on the lows.

5:39We were pointing out the Qs had done nothing in terms of relative outperformance to the S &P going all the way back to July of last year. So, you know, you're making this argument. There's a struggle in some of the biggest market cap stocks in the world, even though this one is the one that probably people feel most comfortable with. And Karen, they may feel most comfortable, but it's also pulling down sentiment. Shares of Pinterest, Snap, those are down fairly sharply, four and five percent here after the bell. Does that feel right? I'm not sure as a snap. I'm not really sure in Pinterest. But just to meta, I think this is my biggest position.

6:10So this is clearly a bummer. I was sort of waiting till we could get away from geopolitical things and toward earnings. You know, be careful what you wish for. But, you know, as Dan and other guys said, the quarter itself was fine. It's the outlook. Obviously, it's disappointing. I do always want to hear the call, though. There's some nuance on the call that sometimes the fairly short press release doesn't really get you. I do think you brought at the top, you know, is the spend the additional spend on AI? They have shown I think that the spend on AI has been worth it. I don't know if they're giving conservative numbers for that spend.

6:44I also don't know if they're giving conservative numbers for that revenue. I'd be interested to hear the cadence of the quarter, how revenue was and how I don't know if they'll give April color or not. That will be interesting to me with this move. If it were to open here down this much tomorrow, it would now be a below market multiple stock, which to me doesn't seem like the right price. Now, does that mean, you know, I'm often a proponent of the three-day rule, you know, on a very big move, wait for three days? But this is a very big move that I think seems overdone, but I want to hear. Maybe there's something I'm missing.

7:22Quick question. Okay, so you just said below market multiple. So if we're looking at the out year, we're going to be mid 2024. So we're going to start looking at 2025 estimates. I'm looking at consensus for 15 percent earnings growth next year and 13 percent sales goes flat margins. So it's trading at 21 times. You know, next year is expected with a stock down like here. You can see, is it that cheap? I guess my point is you're seeing. Well, they have an enormous amount of cash as well, right? And they're buying a lot of stock back and they're kind of massaging those earnings a little bit. So the street consensus right now is calling for mid-teens earnings growth.

7:54And so we're trading at 21 times. It might get to a point if we do see some sort of revenue slowdown. Right. That maybe these stocks don't look that cheap. That's been the narrative right now that the growth is really kind of hyper. Right. And so I don't know. That's the conversation that people are going to have. And, you know, if we're in a higher for longer, you know, rate environment, I just think that some of these multiples that we've gotten really used to are going to come under fire. And wait, just wait until Microsoft reports, because if Microsoft gave this sort of guidance tomorrow when they report, that stock could be down 10 percent.

8:26Well, that stock, I mean, you're already looking at a multiple that's vastly different. Right. So I agree with you there. I feel more comfortable here. I have a tiny Microsoft bet, not even really a bet at this point. That is much, much bigger to me. But we'll see. I think we'll get more data, but it does seem awfully overdone for something that wasn't super frothy going in. No, it wasn't. And what I want to hear in the call is also some ability for the management to express that they can be very flexible on their cost structure. In other words, I think there's a lot of flexibility in what they can do in terms of their operating expenses and that they actually can hold margins in line.

9:02And this is what the company really got credit. They came in off the ledge in terms of the metaverse. They actually got to a place where this year of efficiency has been kind of a joke. I mean, we reference this with almost every company that now has been able to execute in a way that only really meta really was first out there. I want to hear from them that we can be flexible. So I think that's very interesting. By the way, is this the M in the helm? It is. This is the only company that actually fit the description. Was this actually the M? You actually made your acronym. I'm just giving up. Louis Vuitton is an L?

9:34Yeah. Give it back to the gay rights. No, she's not really. Oh, I'm sorry. It's the L in my blicep trade. Okay. All right. Boom. Boom. There you go. Well, for more on Meta, let's bring in Fast Money friend Gene Munster of Deepwater Asset Management. Gene, what are your thoughts on Meta so far? I know the call is ongoing, and that's going to be where we're going to get some more important nuance. Right on, Courtney. And I think, Tim, your comment about efficiency or leverage, operating leverage, is appropriate, given I think the piece that jumped out to me from Zuckerberg's opening remarks, He's just getting going on them right now, but was a piece of bad news related to the amount of invests they're going to have to make on CapEx and energy to build AI.

10:18And he said, he used the words, I want to specifically call this out for investors to know that there is going to be a greater investment period before we realize the full potential of AI. This reminds me of things that Amazon has done in the past, just kind of reminding there are going to be periods of more investment. I read that as probably several quarters of this investment phase. They obviously just updated the CapEx guidance for the full year. But don't expect, reading between the lines here, much of a lift or maybe a breakout in terms of AI. One more piece, Courtney, is beyond that bad news, to say he's bullish about AI and the potential on Meta is an understatement.

11:02He rattled off five different opportunities that they have within AI. And I just want to highlight one of them. He talked about Llama and building a big business at scale. I still believe they're going to build an AWS type of a business based on Llama in the next several years once they get to scale. Investors do definitely seem to be picking up on this several quarters of an investment because it's stock now taking another leg lower here. Jean, down about 19 percent. I know, obviously, you know, there's there's a lot of play here with China advertising from China. Have we heard anything about that yet on the call?

11:35What do you want to hear when it comes to that area of the business? They haven't mentioned it so far. I mean, my my my my thoughts on that is that the I think some of the benefit that they are seeing a benefit from AI, by the way, but it's not a breakout benefit yet. But some of that benefit, of course, has been muted in the guidance for June. If not for the impact of TEMU pulling back, they probably would have guided slightly up where people, they guided down by about a percent and a half. And so I think that, you know, these hard comps from TEMU are going to continue kind of into the September and December quarter.

12:13And so that's going to be another headwind. I think it's easy to get wrapped around the vortex of these headwinds, but ultimately, Guy, at the beginning of the comments, you led off with the 3.2 billion users. That's the same thing that Zuckerberg led off with, and I think that is appropriate to lead off with that, up 7 % year-over-year versus up 8 % year-over-year in December. That's a really hard number to grow. Anything above 1 % is a win. They continue to grow that base. They said it was particularly strong in the U.S. I think the stock is going to continue to move higher because these AI benefits, it's a function of time before they start to see it.

12:51Well, Gene, clearly Mark Zuckerberg is a fast money fan, so I want to say hi to Mark and the gang. But, you know, it's interesting because the quarter on its own, I think, was wonderful. Down 18 percent now. And I didn't think this potentially could happen, but we're looking at levels. You know, the prior all time high in the stock was made, I think, in August of 2021 around 385. That should be huge support. So I guess my question to you is, as Karen mentioned earlier, I mean, at some point, this is getting a little absurd in terms of the magnitude of the sell-off. I thought if you'd have just given me the guidance and given me the commentary about that Zuckerberg talked about this investment phase and then the acceleration thereafter, I would have guessed the stock would have been down somewhere between 5 % and 10%.

13:36And this is a standard deviation away from that. And I think it speaks to this underlying fear in tech investors that the party's going to end. The echoes of 2000, if they weren't investing then, they know all about those lessons learned, and people just don't want to be left in this. It ends up being musical chairs. It's not going to be that. AI is real. It's going to, I think, investors should rest assured. But this is a classic overreaction, just given, I think, a lot of underscores the uneasiness that investors have about this AI opportunity. Great stuff, Gene. We're going to let you go so you can get back on that call, but we're going to check in with you a little bit later.

14:15We're going to go back to Julia Boorstin, who's sort of been listening. And while you've been talking to you, Gene, what else can you share when it comes to the call, Julia? Yeah, Courtney, I've been listening to Mark Zuckerberg talk about how confident he is in the importance to continue to invest massively in AI. He talked about the rollout of this latest AI chatbot and how the results of all of their LAMA investments, and they have LAMA 3, that, quote, leads me to believe we should invest even more to build AI. He goes on to say, we will continue focusing on operating the rest of our company efficiently, but realistically, even while shifting resources to focus on AI, we will grow our investment meaningfully before we make revenue from some of those products.

15:00So they've talked a lot about how they're already seeing AI accelerate the potential and the impact of some of their ad businesses. But what he's saying here is as they work in these large language models, as they roll out the chatbot, they're going to really double down on these AI investments. Interestingly, because they've drawn so much criticism about overinvesting perhaps in the metaverse space, what he's saying is that right now a lot of their metaverse investments are actually AI investments. And there's a huge overlap he sees between these two businesses. The stock is now down over 16 percent on these comments and on the increasing expenses for the company.

15:35But notably, Zuckerberg seems to be trying to reassure the street that these are big upfront investments, but they do pay off over the long run. Yeah, very interesting stuff, Julia. Make sure you keep us posted. Alphabet, Microsoft shares also getting pulled down here seemingly by this meta report. Not nearly as much, of course, but Microsoft shares down about 2 percent. Alphabet down about 3 percent. Amazon as well, lower by 2 percent. I mean, it just it just kind of surprises me, Tim. I mean, maybe this this is not a trade, but it's an investment. You have to invest in the future. And A.I. seems to be it.

16:05I'm just shocked that the stock is down 17 percent on just that. Yes. But this is a company that told us they were spending and investing in the metaverse and they were punished, punished, punished. And but but I agree with you. And it is interesting just to hear a CEO kind of scramble to. I don't know if he's scrambling to the stock. I don't know if he's looking at the charts. I don't know if he cares. On some level, he probably does. But, you know, we know that over time what he's saying is he's saying what is obvious. It's going to take some time to invest in AI. They are also some of the they're one of the few companies that's actually seeing some benefit here in the short run.

16:41So but but if you think about even just the technical elements of of of what markets will do on the back of this, I mean, meta alone, if it you know, if it closes down 20 percent, it's 15 percent now down. But, I mean, you can do that math at 5 % of the triple Qs. There's 75 bips on the NASDAQ tomorrow. And you see other companies, you know, acting in kind. And I think people are trying to get ahead of some kind of a less than rosy from somebody else. All right. So doing some math, this would be$200 billion in market cap. So just think of that. OK, like and so this is on a spend that's two billion higher than people expect on two billion revenue that are lower than they expect.

17:18And what I think is important about this little exercise here is that this can happen to your most favorite stocks. It happened to Meta when they changed their name to Meta and said they were going to spend tens of billions of dollars in late 2021. The stock sold off 77 percent. OK, so like I just think we've been living in this bizarro world for the last kind of nine to 12 months or so since Gen. AI has really infected the stock market, but a very narrow slice of the stock market that owns the stock market. And so if we get Microsoft and Google that have similar sort of messages that it's not even the message is so bad.

17:56We believe that they should be investing like this because this is going to be the future. Meta will be a$2 trillion market cap company at some point in the future. It might be a$3 or$4 trillion market cap company, but it could also get cut in half in the meantime on the way there. And we've seen that in NVIDIA before it came, a$2 trillion market cap company. It was down 70 % from its 21 highs. So I guess my point is, is like three months ago, no one could see this ever happening again. And I'm not saying it's going to happen again, but we've had some recent history that suggests that it could.

18:29This is quite a move. And we're going to continue to follow it throughout the show and also talk about Ford, Chipotle, so much more. And I think we're going to go to break, guys. Sure. I mean, do you want to do that? Do you need to take a breather here? Because we can keep going. I mean, 100%. We've got to pay the bills? We've got to pay the bills. You guys want to talk markets? Sure. All right, let's do that. Okay. All right, we'll do next block. All right, all right. Well, coming up, we do have a lot more earnings actions to bring you. As I mentioned, IBM, Chipotle, Ford, they're all on the move after reporting.

18:57The details of those quarters are coming up. And speaking of earnings, Tesla charging higher on the back of their results. We talked about that a lot yesterday and what the EV maker is promising to do. If they can deliver, of course, huge wild card. and how commentary from the earnings call impacted some other names today. Very interesting moves in some of those ripple effects. You don't want to go anywhere. Much more Fast Money up in two. You're watching Fast Money here on CNBC. We'll be right back.

19:32Welcome back to Fast Money. We've got another earnings alert for you. This time, IBM shares sinking as legacy tech name posted a revenue miss. Big Blue also announcing that it will acquire cloud software HashiCorp for$35 per share. The call just kicked off at the top of the hour. But CNBC's Christina Parts of Nevelis is here with numbers and a conversation that you had. So what stands out to you on this one? Well, it was the third revenue miss in the last five quarters. So that was a concern. But on the call, the first thing they started with is talking about this deal,$6.4 billion,$35 a share, and how it's going to help the hybrid multi-cloud world.

20:04I know, you're shaking your head. It's very confusing. You said it's skeptical. I mean, I was scoffing. No, no, it's not. This is just another point. Here's a legacy company. There's been, what, 40, 45 acquisitions under the CEO since 2020. So this is just another one to add to the mix. Question is, you know, why are you adding this one now? Is Red Hat not doing as well? Or maybe they're saying the synergies are going to be great with Red Hat, going to be great with consulting. It'll be accretive within the first 12 months once the deal actually closes. And they expect free cash flow, specifically for Hashi, which just turned cash flow positive this year.

20:36They expect that cash flow to go from mid-single digits to 30 % to 40 % within year two, which I think was pretty impressive. And I got these stats from the CFO. I was able to chat with them, so they haven't even gone through that on the call. But overall, the other thing that stood out to me, consulting, right? Accenture, March 31st, lowered their revenue guidance, and that was a concern. CFO, CEO also both warn that companies are tightening their IT budgets, but yet Q1 was a major signing quarter for them. Signing quarter doesn't necessarily translate into revenue, right? Revenue dollars that takes several quarters, et cetera.

21:10So for them, it was weaker, but they're still doing better than Accenture. But they did reaffirm their revenue growth, even if it takes several quarters. Yeah, and that's great, too, given the strong U.S. dollar. We know last quarter with IBM, that was a huge headwind, and they reaffirmed it. like you said, despite the strength in the dollar. Right. So the stock is down about 8.5%. You think that's on the news of this deal actually going through? Well, usually when an acquirer takes the company's sense of part of it. It's been reported, so it wasn't already baked in. Well, possibly the revenue missed, too, but slight.

21:41And then you had software that was a little bit light as well. But then they'll say that has to do with the sale of the weather company. So they sold the weather company. That switched into another business segment from software to other divested businesses. so that lowers the software revenue side. They have reasons, right? They'll have an argument for everything, any negative point. Guy, wasn't IBM sort of like the original AI with, like, Watson and all this kind of stuff? How come we don't get credit? They don't get credit with that anymore. Well, because they got away from that for a long time, and the stock traded sideways for four and a half years until they finally started to figure out they integrated Red Hat.

22:14Here's the problem, and I don't know if our crack staff in EC can do this, but we traded up to levels we last saw in 2012. So a lot of the armchair technicians are going to say this is a classic double top with 1.5 % year-over-year revenue growth. Does it deserve the multiple that it's trading at when Facebook, for example, trades at a similar multiple and obviously is getting punished? So they're up against it in terms of what happened with Facebook and that reaction and in terms of just the lack of revenue growth. So this is somewhat justified, I think. Wait, so nothing, the original AI, the two Hoyas on the desk, you guys don't have nothing to say on that?