Now that earnings season is in high gear, companies are finally unveiling quarterly results, revealing how they’ve fared against record-high inflation and supply chain disruptions. Stocks have mostly tumbled year-to-date in response to the Fed’s tightening cycle.
However, buyers have been coming in hot as of late, with earnings season and positive reactions to the Fed’s meeting this week lifting stocks.
One company that reported quarterly results this week was the digital advertisement titan Meta Platforms META. As of late, digital advertising revenue has really cooled off, which was further displayed to us in Snap’s SNAP and Twitter’s TWTR quarterly results.
The year-to-date chart below illustrates the performance of META shares while blending in the S&P 500 as a benchmark.
Zacks Investment Research
Image Source: Zacks Investment Research
Down more than 50% in 2022, is it time to buy META shares? Let’s take a deeper dive by analyzing META’s, SNAP’s, and TWTR’s recent quarterly prints to find out.
Q2 Recap
The company fell short of the Zacks Consensus EPS Estimate of $2.50 and reported quarterly earnings of $2.46 per share, reflecting a 1.6% bottom-line miss.
However, the company did exceed the Zacks Consensus Sales Estimate by a marginal 0.4% and reported quarterly sales of $28.8 billion – a 0.9% decrease from the year-ago quarter.
The chart below illustrates the company’s revenue on a quarterly basis.
Zacks Investment Research
Image Source: Zacks Investment Research
However, advertisement revenue has cooled down. META raked in $28.1 billion in ad revenue for the quarter, reflecting a year-over-year decrease of 1.5% and missing the Zacks Estimate of $29.9 billion by roughly 6%.
Given that the bulk of the company’s income stems from advertisements, this warrants some concern. Plus, it was the company’s first-ever year-over-year decline in ad revenue.
In addition, the company provided some disheartening guidance, forecasting 2022 Q3 revenue in the range of $26 - $28.5 billion, visibly lower than 2021 Q3 sales of $29 billion.
Current CFO of META, David Wehner, says, “This outlook reflects a continuation of the weak advertising demand environment we experienced throughout the second quarter, which we believe is being driven by broader macroeconomic uncertainty.”
However, the company did enjoy some positive growth within its engagement trends – Facebook daily active users (DAUs) increased 3% year-over-year to 1.97 billion, and Facebook monthly active users (MAUs) came in at 2.93 billion, a slight 1% uptick.
Following the quarterly report, one analyst lowered their Q3 outlook, a continuation of the negative estimate revisions received over the last 60 days. For the next quarter, the Zacks Consensus EPS Estimate now resides at $2.55, reflecting a 20% decrease in quarterly earnings year-over-year.
Zacks Investment Research
Image Source: Zacks Investment Research
As we can see, analysts have been bearish across all timeframes.
Twitter & Snap
Snap SNAP shares have tumbled year-to-date, losing nearly 80% in value. However, Twitter TWTR shares have posted a much stronger share performance, propped up on the news surrounding Elon Musk’s plans to acquire the company.
However, the acquisition was shot down upon Musk’s doubts about the company’s user base. The chart below illustrates the share performance of both companies year-to-date.
Zacks Investment Research
Image Source: Zacks Investment Research
It seems that all social media platforms are enjoying an increased level of engagement. In Snap’s quarterly results, DAUs were 347 million in 2022 Q2, an increase of 18%, or 54 million, year-over-year.
In addition, Twitter’s Q2 average monetizable daily active users (mDAUs) was 238 million, up 16.6% compared to the year-ago quarter.
However, Twitter’s quarterly ad revenue dropped by approximately 2.8% from Q1. This segment has been on a decline since 2021 Q4. The chart below illustrates the company’s overall revenue on a quarterly basis.
Zacks Investment Research
Image Source: Zacks Investment Research
Snap reported quarterly revenue of $1.1 billion, a 13% uptick from the year-ago quarter. Still, it was the slowest revenue growth rate that the company has seen, and the market didn’t react well – shares plunged 40% the following day.
Zacks Investment Research
Image Source: Zacks Investment Research
Overall, the digital advertisement market has significantly cooled off, negatively impacting those companies that rely so heavily on this aspect.
A big reason for this slowdown could simply be that not nearly as many people are indulged in the digital world as they were during the pandemic. Additionally, legislation aimed at protecting consumers’ privacy has been a significant headwind for companies that rely on ad revenue for the bulk of their income.
Bottom Line
Meta Platforms is currently a Zacks Rank #4 (Sell). After the deep valuation slash, META’s valuation metrics are much more reasonable – its 14.3X forward earnings multiple is well underneath its five-year median of 24.1X and represents a 22% discount relative to the S&P 500.
Zacks Investment Research
Image Source: Zacks Investment Research
However, with the digital ad market undergoing some turbulence, further headwinds could be in store for the company, and their guidance for 2022 Q3 reflects that.
Furthermore, analysts have reeled in their earnings outlook significantly across all timeframes over the last 60 days, undoubtedly a negative.
Until we see strength return in the digital ad market, it looks beneficial for investors to heed caution with Meta Platforms META shares.
Comments
great article