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Will Lower Ad Revenues Hurt Meta Platforms' (META) Q4 Earnings?

Meta Platforms’ META fourth-quarter 2022 results, set to be reported on Feb 1, are expected to reflect the impacts of weak advertising revenues.

The Zacks Consensus Estimate for fourth-quarter advertising is pegged at $30.32 billion, down 7.1% year over year. Our estimate stands at $29.26 billion, down 10.4% year over year.

In the third quarter of 2022, advertising revenues (99.3% of Family of Apps revenues) decreased 3.7% year over year to $28.15 billion and accounted for 98.3% of revenues.

Meta’s results are expected to have been affected by higher interest expenses, raging inflation and challenging macroeconomic conditions globally.

Meta Platforms, Inc. Revenue (TTM)


Meta Platforms, Inc. Revenue (TTM)
Meta Platforms, Inc. Revenue (TTM)

Meta Platforms, Inc. revenue-ttm | Meta Platforms, Inc. Quote

Click here to know how Meta’s overall fourth-quarter performance is likely to have been.

Ad-Targeting Headwinds to Hurt Top-Line Growth

Ad targeting-related headwinds are expected to have affected the ad-revenue growth rate in the to-be-reported quarter. It is worth mentioning that changes made by Apple AAPL and Google in their mobile operating systems and browser platforms have limited Meta’s ability to track the user-activity trend.

Apple’s iOS changes have made ad targeting difficult, which has increased the cost of driving outcomes. Measuring these outcomes has also become difficult, thereby hurting its ad revenue growth.

Further impacting Meta’s top line is slowing global Monthly Active Users (MAU). In the third quarter, Meta reported 2.958 billion, up 1.6% year over year. MAUs in the Asia-Pacific, RoW, and the United States & Canada grew 2.7%, 2.3% and 1.9% year over year, respectively.

However, Europe MAUs declined 3.5% year over year, a trend expected to have continued in the fourth quarter, due to the loss of users in Russia. This is also likely to have impacted Global MAU negatively.

The Zacks Consensus Estimate for MAUs for the Asia-Pacific, RoW, the United States & Canada, and Europe is pegged at 1.326 million, 0.977 million, 0.267 million and 0.412 million, respectively.

Declining ad revenues have affected Meta’s strategy to fund reality labs. In the third quarter of 2022, Reality Labs’ revenues (1% of total revenues) plunged 48.9% year over year to $285 million primarily due to lower Quest 2 sales.

The consensus estimate for Reality Labs is pegged at $800 million.

AI, ML & Metaverse Driving Prospects

Meta, which currently carries a Zacks Rank #3 (Hold), is banking its future on building the metaverse, which is a shared virtual 3D world, or multiverse created using virtual and augmented reality. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Instagram’s growing popularity in international markets, particularly in Asia, has been helping Meta expand its user base. Much of it can be attributed to the growing popularity of short-form videos, Reels on Instagram. Reels have been attracting Gen-Z to the platform amid competition from Snapchat, Twitter and TikTok.

To increase revenues, Meta has been growing video monetization, especially in short-form videos like Reels using AI and ML.

Meta’s expanding partner base, which includes the like of NVIDIA NVDA and Advanced Micro Devices AMD, is noteworthy in this regard.

AMD collaborated with META as an ecosystem partner to build a Metaverse-ready radio access unit. AMD’s radio chip Xilinx Zynq UltraScale RFSoC will be utilized to develop multiple Evenstar radio units to expand 4G/5G mobile network infrastructure, which is crucial for the metaverse.

Meta collaborated with NVIDIA to build an AI research supercomputer, which is helping its researchers to build different AI models crucial for building the metaverse.

What Do Estimates Say?

The Zacks Consensus Estimate for fourth-quarter earnings stands at $2.23 per share, up 4.7% over the past 30 days but down 39.24%.
Our fourth-quarter earnings estimate stands at $1.49 per share, up from the previous estimate of $1.25.

The consensus estimate for fourth-quarter revenues is pegged at $31.31 billion, indicating a decline of 7.02% from the figure reported in the year-ago quarter.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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