Meta stock drops on quarterly results as 'internet disruptions' in Iran drag down user numbers

Meta shares fell about 7% in extended trading on Wednesday after the company reported lower-than-expected capital expenditures, or capex, and missed on user growth.

Meta attributed its quarter-over-quarter drop in users in part to "internet disruptions in Iran."

Here's how the company did, compared with estimates from analysts polled by LSEG:

Revenue climbed 33% from $42.3 billion a year earlier, marking the fastest quarter for growth since 2021. The jump reflects Meta CEO Mark Zuckerberg's focus on artificial intelligence investments, which have yet to produce new revenue streams but have strengthened the company's core advertising business.

Zuckerberg has spent the past three months continuing his company's deeper push into AI following a strategy shift and talent overhaul that he initiated in June with the $14.3 billion investment in Scale AI and the hiring of CEO Alexandr Wang.

The company reported first-quarter daily active people, or DAP, of 3.56 billion, a 4% increase from the previous year but a more than 5% drop from the fourth quarter. Wall Street was projecting that DAP would come in at 3.62 billion.

Meta said in the war in Iran and "a restriction on access to WhatsApp in Russia" were to blame. Meta and three other hyperscalers — Alphabet, Amazon and Microsoft — all reported results on Wednesday, updating investors for the first time since the U.S. began combat operations in Iran in late February.

Wall Street has been piling into the tech sector despite concerns that surging oil prices and supply chain disruptions from the war in Iran will lead to rising costs for AI infrastructure and related data centers buildouts. Tech stocks are poised to finish their best month since April 2020, the early days of the Covid pandemic, with the Nasdaq up 14% for the month as of Wednesday's close.

First-quarter average revenue per person came in at $15.66, beating the $15.26 average analyst estimate, according to StreetAccount. The average revenue figure was $16.56 during the fourth quarter.

Meta's revenue forecast for the second quarter was roughly in line with expectations. The company projected sales of between $58 billion and $61 billion, while analysts are looking for revenue of $59.5 billion. The middle of the range would equal growth of about 25%.

Net income in the first quarter climbed to $26.8 billion, or $10.44 a share, from $16.6 billion, or $6.43 a share, a year earlier. The jump in profit included an income tax benefit of $8.03 billion, which was an adjustment tied to the Trump administration's tax and spending bill. Diluted EPS would have been $3.13 lower without the tax benefit, Meta said.

Meta said its multiple youth safety-related legal cases "may ultimately result in a material loss." The company suffered two trial losses in March, both involving allegations that the company misled consumers about its products' harms.

Headcount rose 1% year-over-year to 77,986 as of March 31. As it ramps up capex spending, Meta is trying to reduce its overall workforce. The company said last week that it's laying off about 10% of its workforce, or 8,000 employees, while no longer hiring people for 6,000 open roles. Those cuts follow January's layoffs affecting about 1,000 people in the company's Reality Labs unit, and another round in March targeting hundreds of staffers in areas like Facebook, global operations and sales.

Earlier this month, Meta debuted Muse Spark as its first proprietary foundation model. Investors will now be looking for Zuckerberg to start laying out a clearer strategy towards monetization.

"We had a milestone quarter with strong momentum across our apps and the release of our first model from Meta Superintelligence Labs," Zuckerberg said in a statement. "We're on track to deliver personal superintelligence to billions of people."

This is breaking news. Please check back for updates.

WATCH: Retail investors are expecting strong Meta earnings, says Cboe's J.J. Kinahan.