Meta, the parent company of Facebook, saw its shares plunge 16% in extended trading on Wednesday after issuing a light forecast, despite reporting better-than-expected first-quarter results.

The key numbers for the quarter were:

  • Earnings per share: $4.71 per share, compared to the expected $4.32 per share
  • Revenue: $36.46 billion, compared to the expected $36.16 billion
  • Revenue increased 27% from the same period a year earlier, the fastest rate of expansion since 2021
  • Net income more than doubled to $12.37 billion, or $4.71 per share, from $5.71 billion, or $2.20 per share, a year ago

The increase in net income was partly due to a 16% drop in sales and marketing costs compared to the year-earlier period.

However, Meta’s forecast for the second quarter was below analysts’ expectations. The company expects sales in the range of $36.5 billion to $39 billion, with the midpoint of $37.75 billion representing 18% year-over-year growth, which is lower than the analysts’ average estimate of $38.3 billion.

The stock sell-off accelerated during the earnings call after CEO Mark Zuckerberg discussed the company’s investments in areas like glasses, mixed reality, and artificial intelligence, where it currently doesn’t make money.

Meta has been working to rebuild its digital advertising business after facing challenges in 2022, including the impact of Apple’s iOS privacy update and macroeconomic concerns that led to reduced spending by many brands. The company has been investing in AI-powered tools to improve ad targeting and automation.

Advertising revenue, which accounts for the vast majority of Meta’s business, jumped 27% in the first quarter to $35.64 billion. The company has also benefited from increased spending from Chinese discount retailers like Temu and Shein, which have been investing in Facebook and Instagram to reach a wider audience.

However, Meta’s Reality Labs unit, which focuses on the development of the metaverse, continues to be a drag on the company’s finances, reporting $3.85 billion in losses for the quarter.

Overall, Meta’s strong first-quarter results were overshadowed by the company’s cautious outlook, leading to a significant drop in its stock price. The company’s ability to navigate the changing digital advertising landscape and its investments in emerging technologies like the metaverse will be closely watched by investors in the coming quarters.