Meta's weak engagement metrics for its core blue app may remain a drag on its ad-impressions growth, offset by increasing contributions from Reels, WhatsApp and messaging ads.
Meta Platforms announced that it will release its first-quarter, 2023 earnings report after the market closes on Wednesday, April 26.
Analysts expect Meta to post revenue of $27.63 billion, Adjusted net profit of $5.3 billion, and adjusted EPS of $2.527 for the quarter, according to Bloomberg consensus.
Latest Results
Meta reported revenue of $32.2 billion, or a drop of 4.5% compared with a year ago and the third consecutive quarter of declining sales. Still, the sales figure was ahead of Wall Street estimates.
Meta posted a net profit of $4.7 billion for the fourth quarter against the $6 billion analysts surveyed by FactSet were expecting. The latest number represented a 55% decline from the year-ago period, but rose from the three months through September. That snapped a streak of three quarters in which Meta's profit had retreated from the prior quarter -- a slump the company hadn't experienced in a decade.
Facebook's daily active users in the U.S. and Canada, which had remained at 197 million the last two quarters, grew to 199 million. The company's Europe daily users increased to 304 million, up from 303 million the previous quarter.
Meta Engagement, Ad Pricing in Focus as Opex Eases
Meta's weak engagement metrics for its core blue app may remain a drag on its ad-impressions growth, offset by increasing contributions from Reels, WhatsApp and messaging ads. The company's efforts to improve targeting using first-party data may not be enough to change the trend around ad pricing, which has been challenged for the past four quarters and could be below consensus' 14% decline in 1Q.
Two rounds of layoffs totaling about 25% of its workforce suggest steady operating-margin improvement through 2H. Management's comments on its Reality Labs segment will be a key focus on the earnings call given that the segment has so far been mostly insulated from cost-cutting measures, with the bulk of reductions in its core ads business.
Instagram & WhatsApp Remain Catalysts
Meta's valuation is under pressure due to decreasing sales and engagement on its core Facebook app and regulatory risks in the US and Europe. However, Instagram and WhatsApp are essential for enhancing monetization as Meta addresses ad pricing challenges through AI-based targeting.
Meanwhile, the company's entry into payments and e-commerce is anticipated to generate revenue from its messaging apps, especially in emerging markets with greater monetization potential. For example, Meta's recent collaboration with JioMart in India for in-app shopping has paved the way for increased e-commerce through WhatsApp. The company's click-to-message ads already achieved a $10 billion run rate in 2022.
To further increase revenue, Meta plans to launch a Meta Verified feature for creators and influencers, primarily on Instagram, which could contribute materially to annual sales. Additionally, the company might explore a subscription offering, as most digital ads and social media peers already have one. Finally, despite the challenges, Meta's large language model, Llama, will enhance user engagement and ad targeting to counteract headwinds.
Although Facebook Messenger may venture into fintech with peer-to-peer payments, it will likely face competition from rivals such as Apple's iMessage. Meta's success in monetizing its messaging apps and expanding its e-commerce initiatives will be crucial to its future revenue growth, particularly in emerging markets with more monetization opportunities.
More Favorable Growth Outlook In 2023
In 2023, Meta will enjoy a more favorable outlook, beginning in the first quarter, as it moves past its challenges a year ago due to Apple's platform privacy changes and TikTok's growth. Despite these obstacles, Meta has various emerging products and revenue sources.
Reels, for example, continue to boost engagement and reduce monetization headwinds. Over 40% of Meta's advertisers now utilize Reels, and management expects Reels to generate revenue by late 2023 or early 2024. In addition, click-to-message ads are a rapidly growing ad product with a $10 billion revenue run rate. More than 50% of advertisers using these ads exclusively do so on Meta platforms, resulting in increased demand. Furthermore, Meta's AI investments enhance ad ranking, relevance, and engagement, compensating for the loss of signal and measurement associated with ATT.
Nonetheless, the Reality Labs segment's contribution, accounting for about 2% of sales, continues to hinder Meta's top-line growth, with the company now reducing the prices of its premium VR headset by around 33%. In addition, ad-pricing challenges stemming from Apple's privacy changes are expected to persist, even though Meta has made recent platform adjustments to enhance targeting and measurement.
