Meta Platforms (FB), parent of Facebook, will report fourth quarter fiscal 2021 earnings results after the closing bell Wednesday. The stock has trailed the S&P 500 in 2021, posting a 23% gain versus S&P's nearly 27% return. Investors want to know if they should bet on an outperformance this year.
Amid the recent tech selloff over the past several weeks, Meta shares have been under pressure, falling some 15% in thirty days, trailing the S&P 500 index. But now could be a good opportunity to buy on the dip as the stock appears significantly undervalued when compared to its large-cap peers. Aiming to be known for more than just social media (Facebook, Messenger, Instagram and WhatsApp), the company recently rebranded from Facebook to Meta Platforms. It's worth noting here that some estimates suggest that the metaverse can grow as much as $2 trillion annually.
Meta’s advances in virtual reality with its Oculus VR headset gives it a leg up on the competition, and the market will want more details about the company’s plans. In the near term, the company announced it will split out revenue and profits for two business segments. Aside from its Family of Apps, which includes Facebook, Instagram, Messenger, WhatsApp, investors for the first time will get a breakdown for Reality Labs, which included augmented reality/virtual reality hardware as well as software and content.
This new reporting structure is a notable change for the company. And it comes at a time when Facebook suffered due to privacy changes Apple (AAPL) implemented last year as part of iOS 14.0, which presented increased challenges for Facebook to measure and track the effectiveness of its mobile ads. This forced some of Facebook’s advertisers to shift ad spending to other platforms, pressuring the company’s Q3 revenue by more than $500 million. On Wednesday, in addition to its new reporting breakdown, the market will want to see improvements in the digital ad business, which is still the company’s bread-and-butter profit segment.
For the three months that ended December, the Menlo Park, Calif.-based company is expected to earn $3.84 per share on revenue of $33.38 billion. This compares to the year-ago quarter when earnings came to $3.88 per share on revenue of $28.07 billion. For the full year, earnings are projected to rise 38% year over year to $13.92 per share, while full-year revenue of $117.66 billion would rise 36.9% year over year.
Over the past three years, the company had surpassed consensus estimates 100% of the time. That is, until the Q3 revenue miss which was blamed on Apple’s iOS change. Analysts have since reset Facebook’s expectations with more conservative numbers, calling for Q4 revenue to grow at just 18% year over year. Facebook is broadly expected to beat its Q4 estimates handily. In the third quarter, despite the revenue miss, revenues came in at $29 billion - up 35% year-over-year.
Revenue headwinds notwithstanding, Facebook beat on profitability, with EPS growing 19% to $3.22. In terms of engagement with products such as Messenger, Instagram and WhatsApp, Facebook continues to enjoy significant increases in usage. Q3 daily active users rose 6% to 1.93 billion, beating estimates of 1.92 billion. Monthly active users also rose 6% to 2.91 billion, slightly missing consensus of 2.92 billion. Family daily active people rose 11% to 2.81 billion on average, while family monthly active people rose 12% to 3.58 billion.
All told, the company’s leadership position in digital advertising will continue to support the share price. Investors will nonetheless focus on the re-branding to assess the metaverse’s near-term trajectory and its impact on the stock price.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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