A month has gone by since the last earnings report for Meta Platforms (META). Shares have added about 14.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Meta Platforms due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Meta Platforms' Q3 Earnings Miss, Revenues Down Y/Y
Meta Platforms’ (META) third-quarter 2022 earnings of $1.64 per share lagged the Zacks Consensus Estimate by 12.77% and decreased 49.1% year over year.
Revenues of $27.71 billion beat the Zacks Consensus Estimate by 1.13% but decreased 4.5% year over year. At constant currency (cc), the top line improved 2%.
Geographically, Asia-Pacific and the Rest of the World (RoW) revenues grew 5.9% and 4%, respectively, on a year-over-year basis. Europe and the United States & Canada revenues declined 16.6% and 4.2% year over year, respectively.
Revenues from Family of Apps (99% of total revenues), which includes Facebook, Instagram, Messenger, WhatsApp and other services, decreased 3.6% year over year to $27.43 billion.
Family Daily Active People or DAP, defined as a registered and logged-in user who visited at least one of the Family products (Facebook, Instagram, Messenger and/or WhatsApp) on a given day, were 2.93 billion, up 4.3% year over year.
Meta stated that roughly 2 billion people use Facebook and Instagram daily. WhatsApp is used by more than 2 billion people each day and North America is now Meta’s fastest-growing region.
Meta also witnessed strong growth in reels, which reflects growing engagement levels and an improving competitive position compared with the likes of TikTok. It stated that there are now more than 140 billion reels playing across Facebook and Instagram daily, which is a 50% increase over the past six months.
However, reels monetize at a lower rate compared with feed or stories. Meta expects growing reels in the revenue mix will hurt the quarterly top line by more than $500 million over the next 12-18 months.
Family Monthly Active People or MAP increased 3.6% year over year to 3.71 billion.
Advertising revenues (99.3% of Family of Apps revenues) decreased 3.7% year over year to $27.24 billion and accounted for 98.3% of third-quarter revenues.
The year-over-year decline was primarily due to weak advertising demand. The healthcare and travel verticals were the largest positive contributors to ad revenue growth in the reported quarter, fully offset by weakness in online commerce, gaming and financial services.
RoW and Asia-Pacific advertising revenues grew 2.8% and 5.9%, respectively, on a year-over-year basis. Europe and the United States & Canada advertising revenues declined 16.3% and 2.5% year over year, respectively.
Ad impressions delivered across Family of Apps increased 17% year over year and the average price per ad decreased 18% year over year in the reported quarter. Impression growth was driven by Asia-Pacific and RoW. The year-over-year decline in pricing was primarily due to strong impression growth, particularly from lower monetizing surfaces and regions, unfavorable forex and lower advertiser demand.
Family of Apps’ other revenues increased 9.1% year over year to $192 million.
Reality Labs revenues (1% of total revenues) plunged 48.9% year over year to $285 million, primarily due to lower Quest 2 sales.
Facebook’s User Base Remains Strong
Monthly active users (MAUs) were 2.958 billion, up 1.6% year over year.
MAUs in Asia-Pacific, RoW and the United States & Canada grew 2.7%, 2.3% and 1.9% year over year, respectively. Europe MAUs declined 3.5% year over year.
Daily Active Users (DAUs) were 1.984 billion, which increased 2.8% year over year and represented 67% of MAUs.
Asia-Pacific DAUs were up 5% year over year. DAUs in RoW and the United States & Canada grew 2.6% and 0.5%, respectively. DAUs in Europe declined 1.6% year over year.
Average Revenues per User in RoW and Asia-Pacific grew 2.2% and 2.8%, on a year-over-year basis, respectively. Europe and the United States & Canada declined 13.8% and 6.1%, year over year, respectively.
In the third quarter, total costs and expenses increased 18.6% year over year to $22.05 billion. As a percentage of revenues, total costs and expenses were 79.6%, significantly up from the year-ago quarter’s 64.1%.
Total costs and expenses included an impairment charge worth $413 million related to certain operating leases as part of Meta’s plan to align its office facilities with anticipated operating needs.
The year-over-year increase in total costs and expenses was driven by growth in infrastructure and content-related expenses as well as increased headcount-related costs.
In the reported quarter, Family of Apps expenses were $18.1 billion, accounting for 82% of Meta’s overall expenses. FoA expenses grew 18% year over year.
Reality Labs’ expenses were $4 billion, up 24%, driven by employee-related costs and technology development expenses.
As a percentage of revenues, marketing & sales and general & administrative expenses increased 140 basis points (bps) and 210 bps, respectively, on a year-over-year basis.
Research & development expenses, as a percentage of revenues, were 33.1%, significantly up from 21.8% reported in the year-ago quarter.
Meta’s employee base was 87,314 at the end of the third quarter, up 28% year over year.
Operating income of $5.66 billion decreased 45.7% year over year. The operating margin was 20.4%, significantly down from the 35.9% reported in the year-ago quarter.
Family of Apps’ operating income declined 28.5% year over year to $9.34 billion. Reality Labs reported a loss of $3.67 billion compared with the year-ago quarter’s loss of $2.63 billion.
Balance Sheet & Cash Flow
As of Sep 30, 2022, cash & cash equivalents and marketable securities were $41.78 billion compared with $40.49 billion as of Jun 30, 2022.
Capital expenditures were $9.52 billion in the third quarter compared with $7.75 billion in the previous quarter. Free cash flow was $173 million compared with the $4.45 billion reported in the previous quarter.
Meta repurchased $6.55 billion of its Class A common stock in the reported quarter. As of Sep 30, 2022, the company had $17.78 billion available and authorized for repurchases.
Meta expects total revenues between $30 billion and $32.5 billion for the fourth quarter of 2022. Unfavorable forex is expected to hurt year-over-year top-line growth by 7%.
Meta anticipates total expenses for the current year to be between $85 billion and $87 billion, including an estimated $900 million in additional charges related to the consolidation of office facilities. This charge will be recorded in the fourth quarter of 2022.
For 2023, Meta anticipates total expenses to be in the range of $96-101 billion, including an estimated $2 billion in charges related to the consolidation of its office facilities.
In the ongoing year, Meta expects capital expenditures to be between $32 billion and $33 billion.
For 2023, Meta expects capital expenditure between $34 billion and $39 billion, driven by its investments in data centers, servers and network infrastructure.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
The consensus estimate has shifted -10.61% due to these changes.
Currently, Meta Platforms has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Meta Platforms has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Meta Platforms belongs to the Zacks Internet - Software industry. Another stock from the same industry, F5 Networks (FFIV), has gained 11.6% over the past month. More than a month has passed since the company reported results for the quarter ended September 2022.
F5 reported revenues of $700.03 million in the last reported quarter, representing a year-over-year change of +2.6%. EPS of $2.62 for the same period compares with $3.01 a year ago.
F5 is expected to post earnings of $2.37 per share for the current quarter, representing a year-over-year change of -18%. Over the last 30 days, the Zacks Consensus Estimate has changed -9.7%.
F5 has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.
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