Facebook Parent Plunges After Reporting Challenging Revenue Outlook

Ticker Symbol: META

Shares in Meta Platforms were down an eye popping 22% in the morning trading session today, as the company missed its third quarter earnings estimates from Wall Street. Following a weak report from competitors Snap Inc and Alphabet, investors were largely expecting the parent company of Facebook to report numbers that would fall short of expectations. However, the company’s forward guidance on revenue also came in below market expectations. Meta’s shares are down a whopping 70.6% on a year-to-date basis now, far more than the 19.6% decline in the benchmark S&P 500.

The company did report revenue for the third quarter that beat the average analyst estimate by approximately 300 million, coming in at $27.71 billion versus the $27.41 billion estimate. The figure was down 4.5%, declining for the second time ever on a year over year basis after a much smaller 0.9% drop in the last quarter. More crucially, Meta also projected that fourth quarter revenue would be between $30 to $32.5 billion. At the midpoint, the guidance was 3% short of analysts’ expectations of $32.2 billion. Adjusted earnings per share was $1.64, slightly missing estimates of a profit of $1.89 per share.

Facebook did report a beat in daily active users for the quarter. Currently, 1.98 billion people use the firm’s platform daily on a global basis, versus the 1.86 billion that was estimated. The monthly active users metric, however, was less impressive, coming in at 2.96 billion, versus the 2.97 billion estimate. The average price per ad also declined by 18% year over year, worse than the 15.3% decline expected by analysts. That metric was offset by total ad impressions which were up 17%, however, not enough to offset a decline in advertising revenue which came in at $27.24 billion, down 3.7% from 2021. The company reported 3.71 billion daily active daily users across its platforms including Instagram and WhatsApp, almost 50% of the world’s population.

Reality Labs, Meta’s Oculus division, reported revenue of $285 million, down a stunning 49% from Q3 of last year, and well wide of analysts’ forecasts of $406.3 million. Operating loss at the division further ballooned up to $3.67 billion, while the average estimate was for a loss of $3.1 billion. The company explained its decline in aggregate revenue by blaming a weak advertising demand environment which has been “driven by macroeconomic uncertainty.” Chief Executive Officer Mark Zuckerberg asked investors for patience as costs from the “metaverse” initiative continue to swell.

Meta has struggled to compete with ByteDance’s TikTok app. Its Instagram has added features recently to compete more directly with TikTok called “Reels”. While Zuckerberg said that Reels was catching on with users, the short-format product has been a drag on revenue relative to Instagram’s other monetization opportunities. A change in Apple’s privacy rules have also made social media ads less effective, hurting the top-line growth for companies that are reliant on advertising dollars. Further, the company expects total FY 2022 expenses to be between $85 and $87 billion, well above the $85.2 billion modelled by Wall Street. While the company has been focused on the future promises of the virtual reality world, current challenges have pushed investor sentiment to sour on what was once the fifth largest company by market cap in the U.S.

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