Summary
Meta(Nasdaq:Meta)is scheduled to announce Q3 earnings results after the market closes on next Wednesday, October 26. Though it unveiled its newest virtual-reality headset targeting working professionals, its Horizon Worlds fell short, and it froze hiring to minimize costs. All of these made its Q3 earnings pessimistic.
Meta(Nasdaq: Meta)is scheduled to announce Q3 earnings results after the market closes on next Wednesday, October 26. Analysts anticipate Meta’s revenue to reach 27.473 billion, down 5.3% from the same period of the last year. Meta is expected to post earnings of $2.287 per share, down 28.9% year-over-year.
Overall, Wall Street is optimistic about Meta stock, with a Buy consensus rating based on 43 Buys,13 Holds, and 4 Sells. The average price target of $209.28 implies a 57.59% upside potential from current levels.
Latest Results
It reported Q2 earnings of $6.69 billion, or $2.46 a share, down from $3.61 a share last year, on sales of $28.82 billion, down from $29.08 billion a year ago.
Q3 Guidance
It issued a Q3 revenue forecast of $26 billion to $28.5 billion and reported revenue of $29.01 billion inQ3 last year. It also announced that longtime CFO David Wehner will transition to a new role as CSO. Susan Li, Meta's vice president of finance, will take over the CFO role.
3 Things To Watch Before Q3 Earnings Release
1. Company Documents Show Meta’s Flagship Metaverse Falling Short
Internal documents show the transition grappling with glitchy technology, uninterested users and a lack of clarity about what it will take to succeed.
Meta initially set a goal of reaching 500,000 monthly active users for Horizon Worlds by the end of this year, but in recent weeks revised that figure to 280,000. The current tally is less than 200,000, the documents show.
Most visitors to Horizon generally don’t return to the app after the first month, and the user base has steadily declined since the spring, according to the documents, which include internal memos from employees.
2. Meta Debuts $1,500 VR Headset Targeting Working Professionals
Meta unveiled its newest virtual-reality headset, a foray into the world of high-end VR devices designed to entice creators and working professionals to adopt Mark Zuckerberg’s vision for an immersive digital future.
The Meta Quest Pro is the company’s latest offering in a product line previously branded as Oculus. The Quest Pro includes a number of technological advancements from the company’s Quest 2 headset, which was launched in late 2020.
The new headset is also much pricier than its predecessor — it will cost $1,500, or three times the price of the Quest 2, in part because the company is targeting more serious working professionals. With the new device, Meta is seeking to transcend the notion that VR is primarily the realm of gamers, an effort to broaden its audience. Meta’s Quest 2 headset has sold an estimated 15 million units.
3. Mark Zuckerberg Freezes Hiring at Meta
Meta has told employees that it will be implementing a hiring freeze and will be taking more steps to reduce the company's costs, according to people familiar with the matter.
CEO Mark Zuckerberg notified employees of the hiring freeze on Thursday during his weekly all-hands meeting. The announcement comes afterit was reported that Meta was planning to cut expenses by at least 10% in the coming months, including by trimming ranks.
Meta's head of people, Lori Goler, said the company's 2023 budget would be "very tight" across all teams as Meta tries to minimize costs. The pause in recruiting would allow teams to focus on prioritizing important projects, she added.
Analyst Opinions
Bloomberg analyst Mandeep Singh said the pivot to Reels and short-form videos may require increased spending on creators to better compete with TikTok and YouTube, which could drive Meta toward revenue sharing with its creators, resulting in gross margin falling to 70-75% over the next two years from around 80% right now. Meta could pare capex and R&D spending on Reality Labs, after a lackluster event that showcased its Quest Pro device, to offset a sharp decline of 70% in FCF growth expectations. IDFA changes are about a $10 billion drag on Meta's sales for 2022.
Bernstein analyst Mark Shmulikcut the price target to $195 from $230 but regarded it as a Top Pick. He thought we just need the company to get back on track (1) provide evidence that global engagement is up across its Family of Apps (2) offer a disciplined expense guide, and (3) show improvement in revenue trajectory, For the bear case thatMeta is the new Yahoo, he said it could also stage a successful turnaround, similar to what Microsoft did.
RBC Capital analyst Brad Erickson has an outperform rating and a $190 price target on it, he noted that more usage is being shifted towards Reels, which do not monetize as well as other types of content on Facebook and Instagram. And while this may be a concern, any improvement in ad-targeting would outweigh any negativity associated with Reels.