Meta Q3 Earnings Preview: Both Threads and Metaverse Need Time to Take off
Meta forecasts capital expenditures for 2023 of $27 billion to $30 billion, and its metaverse part needs to see AR/VR headsets rebound in 2024 and Thread should take time to build a stable engagement with users.
Meta is scheduled to announce Q3 earnings results after the market closes on Wednesday, October 25th.
Latest Results
Revenue increased 11% from a year earlier, the first time the company has reported double-digit growth since the end of 2021.
Net income rose to $7.79 billion, or $2.98 a share, from $6.69, or $2.46 a share, during the year-earlier period.
Q2 Guidance
The company forecasts capital expenditures for 2023 of $27 billion to $30 billion, down from a prior estimate of $30 billion to $33 billion.
Expenses in 2024 are expected to grow due to investments in data centers and AI, the company said.
Hard to See the Dawn of Massive Bets on Metaverse
The latest news is that Meta is planning to lay off employees in the unit of its metaverse-oriented Reality Labs division focused on creating custom silicon.In Q2 FY23, Meta guided that Reality Labs' operating losses are expected to increase year-over-year in 2023. It doesn't seem likely that they will start generating operating profits from this business anytime soon.
Another thing to mention is that it launched the Quest 3 Mixed Reality headset, but IDC pointed out that 2023 volumes are shaping up to be only slightly higher than 2017 with 8.5 million headsets expected to ship this year. Meta's status as the market leader has not changed as the company held 50.2% market share during the quarter. However, the company does face a challenge from Sony (27.1% market share) and ByteDance (9.6% share), each of which gained share in 2Q23.
Threads Will Need Time to Take off
Threads reached 100 million users within a few hours compared to over 5 years for Twitter, over 3 years for WhatsApp, and close to a year for TikTok.
It was expected that Meta could soon overtake Twitter in terms of daily active users. However, recent reports suggest that most of the initial users were merely experimenting with the platform and they have not become daily active users. This was likely as all new initiatives with Meta take time to build a stable engagement with users.
Analyst Opinions
Bloomberg analyst Mandeep Singh said Meta's continuation of high-teens growth for Q3 and into 2024 may hinge on a sharp positive inflection in ad pricing. Ad loads and engagement growth are likely to plateau in the near term. Click-to-messaging is another important driver that could see a boost from the recent launch of chatbots driven by Meta's Llama large language model. Reality Labs segment losses for 2024 will be a primary focus, given the company's recent launch of Quest 3 and Ray-Ban AR glasses.
Barclays has an Overweight rating and a $410 price target on Meta, the company expects the incorporation of AI could lead to an increase in overall engagement for its 800 million-plus users in 2024. It could boost Meta's core ad revenue by $16B.
JP Morgan maintains an Overweight rating and a $400 price target on Meta, the company increases its 2024 total expenses to $97.5B, and expects Meta to guide to a range of $96B-$102B. 2024 capex remains $38B, and the company expects Meta to guide to a range of at least $35B-$40B.
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