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Why Is Meta Platforms (META) Down 7.5% Since Last Earnings Report?

It has been about a month since the last earnings report for Meta Platforms (META). Shares have lost about 7.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Meta Platforms due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Meta Platforms' Q4 Earnings Beat, Revenues Dip Y/Y

Meta Platforms reported fourth-quarter 2022 earnings of $3 per share, which beat the Zacks Consensus Estimate by 41.51%. Excluding $1.24 per share related to restructuring charges, earnings were $1.76 per share, down 52% year over year.

Revenues of $32.17 billion beat the Zacks Consensus Estimate by 2.74% but decreased 4.5% year over year. At constant currency (cc), the top line improved 2%.

Top-Line Details

Geographically, the Rest of the World (RoW) revenues grew 5.7% on a year-over-year basis. The Asia-Pacific, Europe, and the United States & Canada revenues declined 3.1%, 15.6% and 1.2% year over year, respectively.

Revenues from Family of Apps (97.7% of total revenues), which includes Facebook, Instagram, Messenger, WhatsApp and other services, decreased 4.1% year over year to $31.44 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 2.96 billion, up 5% year over year.

Family Monthly Active People or MAP increased 4.2% year over year to 3.74 billion.

Advertising revenues (99.4% of Family of Apps revenues) decreased 4.2% year over year to $31.25 billion and accounted for 97.2% of fourth-quarter revenues.

RoW advertising revenues grew 4.9% on a year-over-year basis. The Asia-Pacific, Europe, and the United States & Canada advertising revenues declined 3.5%, 15.5% and 0.4% year over year, respectively.

Ad impressions delivered across Family of Apps increased 23% year over year and the average price per ad decreased 22% year over year in the reported quarter.

Meta’s fourth-quarter results suffered from sluggish ad demand, particularly in the financial services and technology verticals. Online commerce and CPG remained weak while the travel and healthcare verticals improved on a year-over-year basis.

Family of Apps’ other revenues increased 18.7% year over year to $184 million.

Reality Labs revenues (2.3% of total revenues) plunged 17.1% year over year to $727 million.

Facebook’s User Base Remains Strong

Monthly active users (MAUs) were 2.96 billion, up 2% year over year.

MAUs in the Asia-Pacific, RoW, and the United States & Canada grew 2.7%, 3.6% and 1.5% year over year, respectively. Europe MAUs declined 4.7% year over year.

Daily Active Users (DAUs) were 2 billion, which increased 4% year over year and represented 67% of MAUs.

Asia-Pacific DAUs were up 6% year over year. DAUs in RoW and the United States & Canada grew 3.9% and 2.1%, respectively. DAUs in Europe declined 1.6% year over year.

Average Revenues per User in RoW grew 2.6% on a year-over-year basis. The Asia-Pacific, Europe, and the United States & Canada declined 5.7%, 12.1%, and 3%, year over year, respectively.

Operating Details

In the fourth quarter, total costs and expenses increased 22.2% year over year to $25.77 billion. As a percentage of revenues, total costs and expenses were 80.1%, significantly up from the year-ago quarter’s 62.6%.

In the reported quarter, Family of Apps expenses were $20.8 billion, accounting for 81% of Meta’s overall expenses. FoA expenses grew 23% year over year.

Reality Labs’ expenses were $5 billion, up 20%, driven by employee-related costs and technology development expenses.

As a percentage of revenues, while marketing & sales expenses increased 120 basis points (bps), general & administrative expenses decreased 20 bps on a year-over-year basis.

Research & development expenses, as a percentage of revenues, were 30.4%, significantly up from 20.9% reported in the year-ago quarter.

Meta’s employee base was 86,482 at the end of the fourth quarter, up 20% year over year.

Operating income of $6.40 billion decreased 49.2% year over year. The operating margin was 19.9%, significantly down from the 37.4% reported in the year-ago quarter.

Family of Apps’ operating income declined 32.8% year over year to $10.68 billion. Reality Labs reported a loss of $4.28 billion compared with the year-ago quarter’s loss of $3.30 billion.

Balance Sheet & Cash Flow

As of Dec 31, 2022, cash and cash equivalents, and marketable securities were $40.74 billion compared with $41.78 billion as of Sep 30, 2022.

Capital expenditure was $9.22 billion in the fourth quarter compared with $9.52 billion in the previous quarter. Free cash flow was $5.29 billion compared with the $173 million reported in the previous quarter.

Meta repurchased $6.91 billion of its Class A common stock in the reported quarter. As of Dec 31, 2022, the company had $10.87 billion available and authorized for repurchases.

Meta also announced a $40-billion increase in its share repurchase authorization.

Guidance

Meta expects total revenues between $26 billion and $28.5 billion for the first quarter of 2023. Unfavorable forex is expected to hurt year-over-year top-line growth by 2%.

For 2023, Meta anticipates total expenses for the current year between $89 billion and $95 billion, including an estimated $1 billion in additional charges related to the consolidation of office facilities.

For the ongoing year, Meta expects capital expenditure between $30 billion and $33 billion.

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How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

The consensus estimate has shifted 30.21% due to these changes.

VGM Scores

Currently, Meta Platforms has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Meta Platforms has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

Performance of an Industry Player

Meta Platforms is part of the Zacks Internet - Software industry. Over the past month, Aspen Technology (AZPN), a stock from the same industry, has gained 7%. The company reported its results for the quarter ended December 2022 more than a month ago.

Aspen Technology reported revenues of $242.84 million in the last reported quarter, representing a year-over-year change of +41.7%. EPS of $0.35 for the same period compares with $1.20 a year ago.

For the current quarter, Aspen Technology is expected to post earnings of $1.66 per share, indicating a change of +20.3% from the year-ago quarter. The Zacks Consensus Estimate has changed +0.4% over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #2 (Buy) for Aspen Technology. Also, the stock has a VGM Score of F.

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