Meta Earnings Release Better Than Expected Offers Relief Boosting Stock 15%

Social media beast Meta, owner of Facebook reported better than expected first quarter earnings after the close Wednesday. $FB guiding lower, and revenue missed but beat on EPS. Daily active users, which declined in the fourth quarter for the first time, bounced back a bit from 1.93 billion to 1.96 billion. $FB was up 15.1% after earnings, the stock fell 26% after the dismal Q4 results.

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Facebook Inc. (NASDAQ: $FB) Reported Earnings After Close Wednesday

$2.72 beat EPS $2.56 expected BUT $27.91 billion missed $28.2 billion Revenue Forecast

Earnings release: after market; conference call: 5 p.m.

Facebook Q1 Earnings

  • Earnings per share: $2.72 vs $2.56 expected, according to a Refinitiv survey of analysts
  • Revenue: $27.91 billion vs $28.2 billion expected, according to Refinitiv
  • Daily Active Users (DAUs): 1.96 billion vs 1.95 billion expected, according to StreetAccount
  • Monthly Active Users (MAUs): 2.94 billion vs 2.97 billion expected, according to StreetAccount
  • Average Revenue per User (ARPU): $9.54 vs. $9.50 expected, according to StreetAccount

Facebook, Inc. Common Stock NASDAQ: $FB

Market Reaction > 201.02 +26.07 (+14.90%) Pre-Market: 

Highlights

  • Revenue rose 7% in the quarter, the first time in Facebook’s 10-year history as a public company that growth us in the single digits. Analysts were expecting 7.8% growth.
  • Facebook’s family of apps, including the core app, Instagram and WhatsApp, accounted for 97.5% of revenue in the quarter.
  • The remaining $695 million came from Reality Labs, the part of the company that’s attempting to build products for the metaverse.
  • In the family of apps business, net income dropped 13% from a year earlier to $11.48 billion.
  • Reality Labs lost $2.96 billion in the period compared with a loss of $1.83 billion in the first quarter of 2021.

Advertising

  • CFO Dave Wehner said that because of the loss of users in Russia, where the country’s media regulator restricted its services, the company expects a sequential decline in MAUs in Europe in the next quarter, which will more fully reflect the result of that government action.
  • Digital ads could also be impacted by inflation and Apple’s recent privacy changes on iPhone operating systems, which Wehner previously predicted would result in a $10 billion revenue hit in 2022, though he acknowledged that figure was an estimate.
  • Chief Operating Officer Sheryl Sandberg told analysts on Wednesday’s earnings call that they’ve so far “been able to close a good part of the underreporting gap and share that with advertisers,” but it will take more time to make up for the rest.
  • “We think while these times are challenging, over the long run, we do have a very strong competitive advantage when you look across the opportunities advertisers have to advertise both offline and online,” Sandberg said.

 

Metaverse

Facebook announced new efforts to invest in areas outside of its core advertising business, including augmented and virtual reality.

  • Facebook breaks out its VR/AR unit called Facebook Reality Labs (FRL) separately. The company said that investments in Facebook Reality Labs will reduce its overall operating profit by roughly $10 billion in 2021.
  • Revenue and operating profit for the company’s family of apps, including Facebook, Instagram, Messenger, WhatsApp and other services, will be reported separately from FRL, which includes AR and VR-reality related hardware, software and content.
  • Investments outside of advertising are proving critical to Facebook’s long-term growth.

Apple Concerns

A main concern among investors is Apple’s (AAPL) privacy changes would negatively alter FB’s outlook. Since the recently launched iOS 14.5 update allows users to block apps like FB from tracking user activity, creating a major hurdle for companies that rely on targeted ads to drive revenue.

Digital ads could also be impacted by inflation and Apple’s recent privacy changes on iPhone operating systems, which Wehner previously predicted would result in a $10 billion revenue hit in 2022, though he acknowledged that figure was an estimate.

Outlook

For the second quarter, Facebook forecast revenue of $28 billion to $30 billion, trailing the $30.6 billion estimate of analysts surveyed by Refinitiv. The company said in the release that the guidance takes into account continued trends from the first quarter, including soft revenue growth that “coincided with the war in Ukraine.”

Facebook lowered its total expenses guidance for 2022 to somewhere between $87 billion and $92 billion, below its earlier estimate of $90 billion to $95 billion. It expects most of that expense growth to be driven by its family of apps segment, followed by Reality Labs.

Meta is also expecting to face a tougher regulatory environment moving forward with Europe coming to an agreement on the Digital Markets Act, which aims to rein in the power of digital gatekeepers.

Sandberg said that though finalized text of the DMA has not been made public, it was generally in line with expectations. She said she expects the regulatory environment to continue to be a “real challenge” for the whole industry.

Source: Traderscommunity, Facebook,

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