Meta posts first negative cash flow since IPO, plans up to $145bn AI spend this year

Shares fell more than 7%, erasing more than $100bn in market value

The BBC reported that Meta was spending so heavily on technology that it posted negative cash flow for the first time since it went public 14 years ago. Cash flow represents the money a company retains after paying for operations and investments, meaning Meta was spending more money than it brought in. Meta said it planned to spend as much as $145bn this year on AI projects, had increased the amount it expected to spend on AI in each financial quarter so far and intended to spend more in the year ahead.

The scale of that spending, without a clear new revenue stream attached to it, appeared to unsettle investors Thursday. Meta shares fell more than 7%, wiping more than $100bn off the company’s market capitalisation, a metric used worldwide to measure the value of a publicly traded company.

Meta’s Wednesday financial disclosure also detailed an agreement with chief executive and Facebook co-founder Mark Zuckerberg intended to prevent him from leaving California over a proposed tax on billionaires. The agreement gives Zuckerberg more shares to make up for the fraction of his fortune he may lose if the measure wins voter approval in November. The deal appears to be effective even if the one-time tax does not pass and will run for eight years as long as he remains a California resident.

The proposal would impose a one-time 5% tax on California residents with net worth above $1bn. The BBC estimated that if voters approve it in November, Zuckerberg would likely pay around $10bn in additional state taxes; his wealth is estimated to exceed $200bn (£149bn). Americans for Tax Fairness said around 225 billionaires lived in California, a state home to most of the US’s technology giants. The BBC reported that the wealth of California’s billionaires, including Zuckerberg, had ballooned in recent years and that Zuckerberg’s estimated effective tax rate in California was less than 1% each year.

Zuckerberg told Meta’s board last month that he was considering moving his primary residence out of California and possibly selling property in the state. His main California homes are in Palo Alto and Lake Tahoe. He told the board that such a move “would be public and inevitably noted and commented upon by company employees” and would “raise questions for management of the company going forward.” A special committee negotiated the agreement after talks Meta described as “robust” and “at several points, contentious.”

Meta’s response came through a stock split announced Wednesday that created an entirely new type of stock and gave one new share to each existing shareholder. Zuckerberg, one of Meta’s largest shareholders, controls the company through the design of his holdings. Under the deal, he will receive more stock more often and can sell it quarterly, according to the filing. Meta said the shares will not change his level of control but will let him cash in more easily on the company’s value.

Meta called the arrangement its “Founder Alignment Agreement” and said keeping Zuckerberg leading the company from California was “critically important” given the “dramatic and unprecedented transformation taking place in the tech industry and global economy related to artificial intelligence.”

The filing also alluded to problems Meta experienced during the Covid-19 pandemic, when Zuckerberg began working outside the office and mostly from his large compound in Kauai, Hawaii. After a surge in hiring during the pandemic, a whistleblower scandal renewed focus on child safety, and the company refocused on building the “metaverse,” including renaming Facebook to Meta, before beginning mass layoffs and restructuring.

Layoffs continued into this year. Meta’s headcount was down 15% from a year earlier, which the BBC said meant the company had shed at least 10,000 workers. Meta has since moved away from the “metaverse,” or virtual platforms, and placed more focus on AI products and related tools.

As Zuckerberg led Meta’s efforts to catch up in the AI race, the board said it saw a future of “tremendous market opportunity” for the company. Major technology companies were set to spend an estimated $1tn this year developing AI and costly infrastructure such as data centres.

Meta chief financial officer Susan Li said Wednesday that the stock split would give the company more ways to finance future spending on AI work.

The BBC also reported that Meta was fined $25bn for “lies” over user-data privacy.