Stagnant ad business and high costs to weigh on Meta earnings – Stock Market News
April 25, 2023 1:27 pm
Facebook’s parent company, Meta Platforms Inc, will report its Q1 financial results on Wednesday, April 26, after Wall Street’s closing bell. The social media behemoth is expected to face another tough quarter due to the significant slowdown in digital advertising demand, while the Metaverse project remains a cash black hole without any expected returns in the foreseeable future. Nevertheless, analysts are expecting an increase in Daily Active Users (DAU), will this be enough to turn things around?
Stellar performance in Q1
After a devastating 2022, Meta’s stock has regained traction on the back of the recent banking turmoil, which triggered bets of faster rate cuts by the Fed. Apart from that, bargain hunters bought aggressively to take advantage of the firm’s historically low valuation, while Zuckerburg’s statements regarding significant cost-cutting and improving efficiency efforts attracted investor interest.
Looking forward, investors are likely to scrutinise the upcoming earnings announcement to get insights over the firm’s blurry outlook. Firstly, all eyes will fall on whether Meta’s DAU number rose in the last quarter amid intensifying competition with Tik Tok and Snapchat. Meanwhile, profit margins will be closely examined as Meta has already begun its 21,000 layoff plan, in a period where spending on ambitious side projects has been drastically reduced.
AI initiatives steal limelight from Metaverse
It is common knowledge that Meta has dedicated a lot of resources on the Metaverse in its attempt to take the lead in a sector that is currently at an embryonic stage. Therefore, the company is facing a dilemma on whether it will continue spending significant amounts of cash on a project that is not expected to provide income streams anytime soon.
The latest news suggests that Meta has curtailed its investments on Metaverse to focus on its AI segment as the sector has been in the headlines after OpenAI launched the ChatGPT chatbot. So, investors could look out for any clues regarding Meta’s diversification efforts towards the evolving AI market.
Another devastating quarter
Since late 2021, Meta posted five back-to-back negative earnings announcements, with its revenue and earnings per share (EPS) figures declining on an annual basis for the last three and five consecutive quarters respectively. The upcoming earnings report is anticipated to extend this unfavorable streak.
For the first quarter, forecasts by Refinitiv analysts suggest that EPS is expected at $2.03, which would represent a 25.46% decline on an annual basis. Revenue is projected to fall to $27.65 billion, marking a 0.9% drop compared to the same quarter last year.
Valuation remains attractive
Even though the latest rebound in equity markets pushed Meta’s valuation significantly above its recent lows, it could be argued that the stock price remains in ‘fair value’ territory, considering analysts’ growth estimates. The 12-month forward price-to-earnings ratio, which denotes the dollar amount someone would need to invest to receive back one dollar in annual earnings, currently stands at 19.7x. This ratio is way lower than the tech-heavy Nasdaq’s average multiple of 25.6x.
Undoubtedly, Meta faces substantial short-term challenges, but it’s difficult to argue that the tech firm does not retain long-term growth prospects. Taking into account that almost 40% of the world’s population is using at least one of the company’s platforms, which include Instagram, Facebook and WhatsApp, Meta could realise significant gains if it manages to increase user engagement and monetize at higher rates.
Will the 2023 surge resume?
After huge growth during the pandemic, which led to a new all-time high in 2021, Meta’s stock got heavily beaten down last year. Nevertheless, the share price has posted a solid comeback in 2023, currently being around 75% up year-to-date.
On the positive side, should earnings surprise to the upside, the bulls could initially aim for the 2023 high of $222.00. Surpassing that zone, the price could ascend towards $248.00 before attempting to fill the gap formed in early 2022.
Alternatively, if earnings reflect further weakness, the price could challenge $189.00, which has served both as support and resistance in the past. A break below that region might pave the way for the March low of $168.00.
Facebook’s parent company, Meta Platforms Inc, will report its Q1 financial results on Wednesday, April 26, after Wall Street’s closing bell. The social media behemoth is expected to face another tough quarter due to the significant slowdown in digital advertising demand, while the Metaverse project remains a cash black hole without any expected returns in the foreseeable future. Nevertheless, analysts are expecting an increase in Daily Active Users (DAU), will this be enough to turn things around?
Stellar performance in Q1
After a devastating 2022, Meta’s stock has regained traction on the back of the recent banking turmoil, which triggered bets of faster rate cuts by the Fed. Apart from that, bargain hunters bought aggressively to take advantage of the firm’s historically low valuation, while Zuckerburg’s statements regarding significant cost-cutting and improving efficiency efforts attracted investor interest.
Looking forward, investors are likely to scrutinise the upcoming earnings announcement to get insights over the firm’s blurry outlook. Firstly, all eyes will fall on whether Meta’s DAU number rose in the last quarter amid intensifying competition with Tik Tok and Snapchat. Meanwhile, profit margins will be closely examined as Meta has already begun its 21,000 layoff plan, in a period where spending on ambitious side projects has been drastically reduced.
AI initiatives steal limelight from Metaverse
It is common knowledge that Meta has dedicated a lot of resources on the Metaverse in its attempt to take the lead in a sector that is currently at an embryonic stage. Therefore, the company is facing a dilemma on whether it will continue spending significant amounts of cash on a project that is not expected to provide income streams anytime soon.
The latest news suggests that Meta has curtailed its investments on Metaverse to focus on its AI segment as the sector has been in the headlines after OpenAI launched the ChatGPT chatbot. So, investors could look out for any clues regarding Meta’s diversification efforts towards the evolving AI market.
Another devastating quarter
Since late 2021, Meta posted five back-to-back negative earnings announcements, with its revenue and earnings per share (EPS) figures declining on an annual basis for the last three and five consecutive quarters respectively. The upcoming earnings report is anticipated to extend this unfavorable streak.
For the first quarter, forecasts by Refinitiv analysts suggest that EPS is expected at $2.03, which would represent a 25.46% decline on an annual basis. Revenue is projected to fall to $27.65 billion, marking a 0.9% drop compared to the same quarter last year.
Valuation remains attractive
Even though the latest rebound in equity markets pushed Meta’s valuation significantly above its recent lows, it could be argued that the stock price remains in ‘fair value’ territory, considering analysts’ growth estimates. The 12-month forward price-to-earnings ratio, which denotes the dollar amount someone would need to invest to receive back one dollar in annual earnings, currently stands at 19.7x. This ratio is way lower than the tech-heavy Nasdaq’s average multiple of 25.6x.
Undoubtedly, Meta faces substantial short-term challenges, but it’s difficult to argue that the tech firm does not retain long-term growth prospects. Taking into account that almost 40% of the world’s population is using at least one of the company’s platforms, which include Instagram, Facebook and WhatsApp, Meta could realise significant gains if it manages to increase user engagement and monetize at higher rates.
Will the 2023 surge resume?
After huge growth during the pandemic, which led to a new all-time high in 2021, Meta’s stock got heavily beaten down last year. Nevertheless, the share price has posted a solid comeback in 2023, currently being around 75% up year-to-date.
Alternatively, if earnings reflect further weakness, the price could challenge $189.00, which has served both as support and resistance in the past. A break below that region might pave the way for the March low of $168.00.
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