Meta Platforms stock has dropped roughly 20% year-to-date despite reporting 24% revenue growth in its most recent quarter, exposing a fundamental disconnect between top-line performance and investor concerns about profitability, legal liabilities, and massive AI spending.
The social media giant faces mounting pressure on multiple fronts. Expenses surged 40% year-over-year to $35.15 billion in the fourth quarter, driven by data center buildouts and research and development costs.
This spending explosion crushed operating margins, which fell from 48% to 41% year-over-year. Earnings per share grew just 11% despite the strong revenue performance.
Meta plans to pour up to $135 billion into capital expenditures this year as it races to catch up with AI rivals Google, OpenAI and Anthropic. The company hasn't shown significant new revenue opportunities from these investments yet.
"The majority of expense growth will be driven by infrastructure costs," management noted in recent guidance.
Two court defeats this week added legal uncertainty to Meta's challenges. A New Mexico jury ordered the company to pay $375 million for child safety violations after finding Meta "prioritized profits over safety." A separate California case resulted in $6 million in damages shared with Google. While financially insignificant for a company with over $60 billion in annual net income, the verdicts signal growing regulatory scrutiny.
"The jury's verdict is a historic victory for every child and family who has paid the price for Meta's choice to put profits over kids' safety," said New Mexico Attorney General Raúl Torrez.
Prosecutors had sought penalties exceeding $2 billion in that case.
Meta confirmed it will cut "several hundred" jobs across sales, recruiting, and its Reality Labs VR division this week. Those cuts follow January layoffs that impacted 10% of Reality Labs staff, equaling over 1,000 employees. The job reductions come as CEO Mark Zuckerberg shifts focus toward AI while seeking efficiency in core operations.
Despite the pullback, Meta trades at a premium valuation with a forward price-to-earnings ratio of about 21 times earnings, well above typical tech/media peers at 13 times. Its enterprise value to EBITDA ratio stands at 15 times versus an industry average around 11 times.
The stock closed at approximately $525.72 on March 28, reflecting an 11.4% drop over the past week and 20% decline over the last month. Daily trading ranged from $520 to $553 that day, highlighting intraday volatility typical of large-cap tech names under pressure.
With 3.58 billion daily active users across Facebook, WhatsApp, Instagram, Threads and Messenger, Meta continues to generate substantial advertising revenue. Fourth-quarter sales reached $59.9 billion, and first-quarter guidance projects revenue between $53.5 billion and $56.5 billion, representing nearly 30% year-over-year growth at the midpoint.
But investors appear focused on whether AI investments will translate into productivity gains without further eroding profitability. The company's Reality Labs unit remains tiny by revenue at about 1% of total sales but has accumulated massive losses pursuing virtual reality and improved reality ambitions.
Long-term forecasts predict continued volatility through 2026, with March averaging around $561 before potential dips to $396 by May followed by gradual recovery to $607 by year-end according to some models.
