Social media beast Meta, owner of Facebook shares were savaged around 20% to levels last seen in July 2016. META reported third quarter revenue and EPS missed as it posted a net profit of $4.39 billion, or $1.64 a share, down from $9.2 billion, or $3.22 a share last year. META also warning going forward. This was the fourth quarter in a row Meta’s bottom line has fallen. The company hasn’t experienced such a slump since the fourth quarter of 2012. Yesterday both Spotify and Google-parent Alphabet revealed shrinking advertising demand also. Social media company SNAP was also dumped after its earnings.
Highlights
- Earnings $4.39 billion EPS: $1.64 (exp $1.89) down from $9.2 billion, or $3.22 a share last year.
- Revenue: $27.17B (exp $27.44B) down from $29 billion a year ago.
- Sees Q4 Revenue $30B To $32.5B (exp $32.2B)
- Facebook Daily Active Users: 1.98B (exp 1.86B)
- Facebook Monthly Active Users: 2.96B (exp 2.97B)
- Instagram now claims more than 2 billion monthly active users,
- WhatsApp’s user base has surpassed 2 billion daily active users, with North America being the messaging app’s fastest-growing region.
- Had more than 87,000 employees at the end of September, a 28% increase over the same period last year, and anticipates staying around that level.
Stock Market Reaction
A sea of red, Meta or Facebook investors are down even after 5 Years.
- $META 104.30 ▼ 25.52 (-19.66%) After hours
- After closing at $129.82-7.69 (-5.59%), -208.72 (-61.65%) YTD, 129.82 -40.78 (-23.90%) 5 Years
Meta’s shares have retreated since the company posted quarterly results in February that showed a sharper-than-expected decline in profit, gloomy revenue outlook and dip in daily users. Meta’s stock closed more than 6% higher and fell more than 4% after hours following the results.
Facebook last year announced new efforts to invest in areas outside of its core advertising business, including augmented and virtual reality.
“While we face near-term challenges on revenue, the fundamentals are there for a return to stronger revenue growth,” Chief Executive Mark Zuckerberg said Wednesday. “We’re approaching 2023 with a focus on prioritization and efficiency that will help us navigate the current environment and emerge an even stronger company.”
- 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.
Digital Advertising
Advertising represented 98.2% of the company’s total revenue.
For the quarter, advertising revenue was $27.2 billion, down nearly 4% year-over-year. Analysts predicted Meta’s advertising revenue would fall to $26.9 billion.
Meta said its average ad price decreased 18% year-over-year, as it adjusts to Apple’s changes that make it harder for Meta to track users and serve them personalized advertising. In the same quarter last year, the average price per ad climbed 22%.
The effects of Apple’s changes diminished in the third quarter, but that was offset by weak advertising demand, Mr. Wehner said. Digital advertising market is hurting from surging inflation and other factors that are causing a slowdown in ad spending.
Google parent Alphabet Inc. on Tuesday reported the slowest rate of growth since the second quarter of 2020, when the pandemic crimped demand for advertising in some areas. Rival Snap reported its weakest-ever quarterly sales growth last week while Twitter reported a decline in revenue also.
Apple Concerns
Facebook said it continued to face challenges in targeting ads as a result of changes made by Apple Inc. to the iPhone’s operating system. 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.
Facebook Reality Labs (FRL)
Meta’s Reality Labs unit drives the company’s virtual-reality and metaverse business.
- The segment posted revenue of $285 million for the quarter, a decline of nearly 49% from a year ago. This was due to lower sales of its Quest 2 virtual-reality headsets, Meta Chief Financial Officer David Wehner said.
- The unit had an operating loss of $3.7 billion, and the company said it expects that figure will grow significantly next year.
- Horizon Worlds, Meta’s flagship metaverse product for consumers, has fewer than 200,000 monthly active users, far less than the company’s original goal of 500,000 users by the end of this year, according to company documents cited by The Wall Street Journal earlier this month.
- The company didn’t provide new user figures for Horizon Worlds on Wednesday.
Analyst Reaction
Insider Intelligence analyst Debra Aho Williamson
In a note late Wednesday, “Meta is on shaky legs when it comes to the current state of its business. Mark Zuckerberg’s decision to focus his company on the future promise of the metaverse took his attention away from the unfortunate realities of today: Meta is under incredible pressure from weakening worldwide economic conditions, challenges with Apple’s AppTrackingTransparency policy, and competition from other companies, including TikTok, for users and revenue.”
Josh Brisco, group VP of acquisition media at search-engine marketing company Tinuiti,
“We continue to see strategic diversification away from Meta by many advertisers, largely due to stubbornly high CPMs relative to other social platforms and persistent challenges in performance measurement,”
Alex Howland, president and founder of Virbela
“First and foremost, the discussion needs to pivot to how to build an engaged community of users, and for that, the metaverse must improve or compliment real-world experiences in some way so that people find value and keep coming back.” Virbela builds virtual worlds
Reels and Tik Tok
Meta is now seeing 140 billion Reels plays across Facebook and Instagram each day, which is a 50% increase from six months ago Zuckerberg said.
“The trends look good, and we believe that we’re gaining time-spent share on competitors, like TikTok,” Mr. Zuckerberg said.
Reels doesn’t monetize as effectively as the company’s other types of content, so as it pivots toward showing more short-form video, Meta is taking a quarterly revenue headwind of more than $500 million, Zuckerberg said. Meta expects to get to a more neutral place with this shift within the next 12 to 18 months.
“As Reels grows, we’re displacing revenue from higher-monetized surfaces,” Mr. Zuckerberg said. “That’s clearly the right thing to do.”
Outlook
Meta executives issued a fourth-quarter revenue forecast of $30 billion to $32.5 billion, while analysts were forecasting $32.3 billion. The company is feeling the pinch from the strong dollar, which is weighing on the top line. Meta said it expects its 2022 total expenses to be in the range of $85 billion to $87 billion, narrowing from a previous forecast of between $85 billion and $88 billion. The company said it estimates its 2023 total expenses to be between $96 billion and $101 billion.
In prepared comments, Meta’s departing chief financial officer David Wehner said it is “making significant changes across the board to operate more efficiently. We are holding some teams flat in terms of headcount, shrinking others and investing headcount growth only in our highest priorities. As a result, we expect headcount at the end of 2023 will be approximately in-line with third-quarter 2022 levels.”
Source: Traderscommunity, Facebook,
From The Traders Community News Desk