Meta Platforms shares have been on a wild ride since the social networking giant last reported financial results in late October.
The stock plunged 25% after reporting September quarter results, largely due to the stock market’s horror at the planned rate of expense growth for 2023 at the parent of Facebook, Instagram and WhatsApp.
Just a couple of weeks later, though, Meta (ticker:META) conceded that it had become too aggressive on its spending plans, announcing 11,000 jobs cuts, while trimming its outlook for expense growth. The stock has since rallied more than 50%, with investors encouraged that CEO Mark Zuckerberg was suddenly acting in a more shareholder friendly way.
Heading into the results for the December quarter, due after the close of trading on Wednesday, analysts remain hopeful that the report will show that some of the pressures on Meta’s business have begun to ease. But make no mistake: Meta continues to face substantial short- and long-term operating issues.
Meta is dealing with heightened ad competition from TikTok, Amazon (AMZN), Netflix (NFLX) and others; ongoing targeting and measurement issues due to Apple‘s (AAPL) tough stance on privacy; and a slowing macroeconomic environment. The company also continues to spend wildly on its push into the metaverse. And it faces ongoing regulatory scrutiny from the U.S. Federal Trade Commission, the European Union and other government agencies.
For the quarter, Meta has projected revenue of between $30 billion and $32.5 billion, down about 7% from a year earlier at the midpoint of the range, while analysts foresee revenue of $31.6 million. Street consensus calls for adjusted profits of $2.27 a share, down 38% below from a year earlier.
Along with the layoff announcement, Meta in November reduced its forecast for 2023 total expenses to between $94 billion and $100 billion, from a previous target range of $96 billion to $101 billion. At the midpoint of the two ranges, that’s a trim of 1.5%. Meta likewise issued a revised capital spending target range of $34 billion to $37 billion, from a previous forecast of $34 million to $39 billion. The company said at the time that the spending target revision reflects “our plan to add fewer employees in 2023 than we previously expected as we are significantly slowing our hiring trajectory through the beginning of 2023.”
The Street sees revenue for the quarter of $31 billion from Meta’s “family of apps” segment, and $713 million from Reality Labs, which includes VR headsets and the nascent metaverse business. Consensus estimates call for Meta to produce $12.35 billion in operating income from apps, with a loss of $4.39 billion from Reality Labs.
Evercore ISI analyst Mark Mahaney wrote in a recent research note previewing the quarter that the current Street forecast seems reasonable, especially given easing foreign exchange headwinds. He doesn’t think the company will further reduce its spending plans, and he thinks the Street consensus revenue forecast for the March quarter of $27.2 billion seems reasonable.
As Mahaney notes, Microsoft in reporting results last week said that revenue from its ad business—including both Bing and LinkedIn—was shy of the company’s expectations. Mahaney adds that checks with ad agencies “points to signs that the Ad Winter is extending in Q1,” with stabilization and potentially recovery later in the year. But Mahaney also sees some potential tailwinds for Meta, including better Reels monetization and easier year-over-year comparisons.
BofA Global Research analyst Justin Post late last week repeated his Neutral rating on Meta shares, while lifting his target price to $160, from $150, mostly to reflect increased earnings estimates tied to a more favorable foreign exchange rate situation. He adds that channel checks and e-commerce data suggest that fourth-quarter ad spending remains soft, although he sees some benefit from the ad dollar market shift away from Twitter. Unlike Mahaney, Post thinks that the Street is anticipating some further modest cuts in the company’s operating expense forecast for 2023.
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