The revenue run rate for Reels and WhatsApp will be a key focus for sales growth. Losses in Meta's Reality Labs segment could be around $4 billion in 4Q. The ad-pricing decline could persist due to IDFA changes.
Meta Platforms announced that it will release its fourth-quarter, 2022 earnings report after the market closes on Wednesday, Feb. 1.
Analysts expect Meta to post revenue of $31.57 billion, down 6.2% from the same period of the last year. Adjusted net profit of $6.4 billion, and adjusted EPS of $2.92 for the quarter, according to Bloomberg consensus.
Latest Results and Outlook
In the third quarter, Meta posted revenue of $27.7 billion, slightly beating analysts’ average estimate for $27.4 billion. Net income fell 52% from the same quarter last year to $4.4 billion. Earnings per share were $1.64, below the $1.88 per share average estimate.
Meta Platforms gave a forecast for revenue in the fourth quarter that was on the low end of analysts’ estimates, showing the social-media platform continues to struggle with a weak advertising market amid an economic slowdown.
The owner of Instagram and Facebook said it sees $30 billion to $32.5 billion in revenue in the last three months of the year. Analysts had been expecting $32.2 billion, according to estimates compiled by Bloomberg.
Meta’s Expenses on the Metaverse Extends in Q4
The company, which changed its name from Facebook to Meta a year ago, is betting big on the metaverse, virtual-reality-fueled gathering places that Zuckerberg thinks will host the future of work and communication. The effort is losing Meta billions, and the company expects to lose more money on the metaverse bet next year.
The metaverse will keep the company’s expenses “relatively high”. Meta’s expensive bet on the metaverse isn’t going away any time soon and will account this year for a fifth of all costs.
Meta now expects total expenses for 2022 to be $85 billion to $87 billion. For 2023, that number will grow to an expected $96 billion to $101 billion.
Revenues associated with the metaverse are expected to be several times that of Facebook, as while folks might be accessing Facebook multiple times a day, they would be spending significantly larger fractions of their day, immersed in the metaverse. Based on META’s projections, within a decade of launch, time spent in the metaverse could reflect that spent watching television in the 1990’s, or perusing Facebook in more recent times. Moreover, considering that Meta is building the metaverse block by block, first mover advantage could provide the firm with a land-grab opportunity to secure the largest advertisement contracts, for significant time horizons.
Meta's Ad-Pricing Decline Could Persist in Q4
Facebook & Instagram together is undoubtedly the No.1 Social Network platform by number of users. However, this is not the only metric determining the success of Social Network Ads. User time spent and user distribution by generation all remain crucial when we evaluate the Ads dollar potential.
Since 2020, Facebook users time spent has been trending down. Instagram users time spent grows slightly year over year, but remains around 30 mins. According to eMarketer, TikTok's users time spent in US is 56 mins. This proved how popular short-form video is nowadays.
META’s business is comprised of two segments: Family of Apps (FOA), which includes revenues from Facebook, Instagram, Messenger, and WhatsApp; and Reality Labs (RL), which generates sales from virtual reality (VR) headsets, augmented reality (AR) smart glasses, and the Horizon Worlds, metaverse platform. Over nine months ended September 2022, FoA represented 98.3% of total revenues (advertisements contributed 97.6%), and RL accounted for 1.7%.
Meta’s once-lucrative ad business is stagnating in 2022 because of changes in Apple Inc.’s privacy policy that makes it more difficult to target consumers with ads on its devices.
Perhaps more crucially, investors will want to see how much of a squeeze Apple’s privacy policy change is continuing to put on ad revenue. In February, Meta estimated Apple’s move would cause a $10 billion revenue hit for the year.
Meta has transformed a number of key parts of its business. As ByteDance Ltd.’s popular TikTok app has won users’ time and accustomed them to a feed of vertical videos based on users’ interests, Meta has changed Facebook and Instagram’s experiences to show more algorithmically-chosen content and less from the people you follow. Its short-form videos, called Reels, are meant to increase user engagement and revenue opportunities on the app.
Analyst Opinions
Meta is the best performer in the S&P 500 Index since the stock’s recent low in November, gaining 54%. The bounce was partially driven by the social-media firm’s announcement that it would slash more than 11,000 jobs, the first major round of layoffs in the company’s history.
Analysts have slashed their average expectations for adjusted earnings per share by 27% and for revenue by 15% over the last six months, according to Bloomberg data.
Still, there are plenty of bulls. JPMorgan Chase & Co.’s Doug Anmuth last month upgraded his recommendation on Meta to overweight from neutral, noting cheap valuations. And among investors polled by JPMorgan this month, 41% said they expected Meta to be the top-performing megacap internet stock of 2023.
Sylvia Jablonski, chief investment officer of Defiance ETFs, said Meta appeared to have recognized that shifting focus back to its ad business would be strategically better than throwing all of its eggs into the metaverse basket. This is “a welcome balance for investors,” she said.
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