Meta Platforms (META) Q4 2022 Earnings: What to Expect
Meta Platforms (META) suffered the biggest losses among its FAANG peers in terms of market cap percentage in 2022, but is now a good time to bet on a recovery?
The social media giant is set to report fourth quarter fiscal 2022 earnings results after the closing bell Wednesday. Driven by a prolonged decline in the digital advertising segment, impacting its Facebook and Instagram products, the market has slashed the company's revenue expectations, suggesting as much as a 6% decline in year-over-year revenue. There’s also increasing investor concerns over inflationary cost pressures and whether the company can effectively compete with the likes of TikTok.
However, Meta can still beat profit expectations, which are low. The company’s Facebook platform still has roughly 2 billion active daily users, with close to 3 billion using it on a monthly basis. Meanwhile, Instagram boasts roughly 2 billion monthly active users, with 500 million global users on a daily basis. These figures underline what remains a dominant global internet platform, giving the company a significant trove of precious data for its advertising businesses to fund its various initiatives and to generate free cash flow.
What’s more, the shares are priced at just fifteen times forward earnings. With a consensus analyst price target of $152, which suggests 26% upside from current levels, Meta stock should be on any short list of stocks to buy in 2023. The company on Wednesday will nonetheless need to show improvements in its Reality Labs, demonstrating that the business can emerge as Meta’s profit center that it is expected to become.
For the three months that ended December, the Menlo Park, Calif.-based company is expected to earn $2.21 per share on revenue of $31.44 billion. This compares to the year-ago quarter when earnings came to $3.67 per share on revenue of $33.67 billion. For the full year, earnings are projected to decline 34% year over year to $9.08 per share, while full-year revenue of $116.11 billion would decline 1.5% year over year.
Without question the company is heavily reliant on digital ad spending growth to fund its various initiatives. The reported third-quarter total advertising revenue of $27.2 billion was down roughly 4% year over year and off by 3.3% from its second-quarter results. Notably, this resulted in Q3 profit miss of $1.64 per share which was roughly 50% lower on a year-over-year basis. The reason for the bottom line miss could be seen in the Q3 expenses which rose 19%, pushing the operating income lower by 46% to $5.66 billion.
Q3 operating margin was also under pressure, coming in at 20% or 16 percentage points lower from a year ago. "While we face near-term challenges on revenue, the fundamentals are there for a return to stronger revenue growth," CEO Mark Zuckerberg said in a statement. "We're approaching 2023 with a focus on prioritization and efficiency that will help us navigate the current environment and emerge an even stronger company," Zuckerberg said.
In that regard, management is taking steps to address the weakening macro environment. The company in November announced plans to trim is global workforce by 11,000, lowering its headcount by roughly 15%. This suggests that the company is looking to lower costs and emerge as a more efficient operation with rising profits and free cash flow. The market on Wednesday will nonetheless want to see improvements in the bread-and-butter digital ad business before re-pricing the stock higher.