Meta stock crashed more than 50% to a two-year low amid worry that the sun has set on parent company Facebook’s dominance of social media — for both users and advertisers alike.
X The renamed Meta Platforms ( FB ) rebounded strongly on Q1 earnings, despite missing on revenue, but shares are still near recent lows.
Meta Earnings Update Probably the best news for Meta is that users aren’t deserting Facebook.”More people use our services today than ever before,” CEO Mark Zuckerberg said in the earnings statement.Daily active Facebook users rose to 1.96 billion from 1.929 billion in Q4.With users in the U.S.
and Europe essentially moving sideways, the growth came from the Asia-Pacific and other regions.
On Feb.2, Meta issued first-quarter guidance that calls for revenue in the range of $27 billion-$29 billion.With analysts expecting $30.2 billion in Q1 sales, that warning precipitated an epic sell-off that has now cost Meta about $500 billion in market value.
Analysts pared their estimate to $28.2 billion, but Facebook came in shy at $27.91 billion.
However, adjusted EPS topped estimates by 16 cents, despite falling 18% from a year ago.
Meta said that it delivered 15% more advertising impressions than in the first quarter of 2021, but the average price per ad decreased by 8% from a year ago.
Q2 revenue will range from $28-$30 billion, Meta said, with the high point below expectations of about $30.6 billion.
Some of that weakness reflects Apple’s privacy change, which has hurt advertisers’ return on ad spending.That means they’re not willing to spend as much per ad on Facebook.Macroeconomic issues likely also dampened ad spending, with higher interest rates and supply shortages both negative factors.Meanwhile, Russia’s invasion of Ukraine cratered those economies and sent energy prices surging, especially in Europe.
The earnings beat reflected lower expenses.
Meta scaled back total-year expenses to a range of $87-$92 billion from the prior outlook of $90-$95 billion.
In Q1, Meta’s Reality Labs division, focused on growing the metaverse via augmented- and virtual-reality headsets and software, lost $2.96 billion in the quarter on revenue of $695 million.
Meta’s Family of Apps — including Facebook, Instagram, WhatsApp and more — had operating income of $11.48 billion on revenue of $27.21 billion.
Facebook’s TikTok Problem On top of Apple’s privacy change that has made online ads less effective, Meta’s Q4 earnings announcement raised additional concerns that could weigh on growth.The biggest: “We believe competitive services are negatively impacting growth, particularly with younger audiences,” CFO Dave Wehner said in Wednesday’s Q4 earnings call.TikTok was the only competitor mentioned by name.
Trying to combat the TikTok threat and up its game with young adults has created another headwind to Meta’s earnings power.Meta is now focused on driving user engagement via its Reels short-form video feature, yet there are “relatively few ads in Reels today,” Wehner said on Feb.2.
While Meta expects that Reels will prove fertile ground for monetization, that will take time.Meanwhile, Reels growth will weigh on overall results, since Meta algorithms will preference the short-form videos, meaning less growth for more ad-heavy News Feed and Stories formats.
In February, Meta announced the release of two ad formats for Reels that are semitransparent so as not to interfere with the video content.
Meta is offering revenue sharing to Reels creators to place the ads.Morgan Stanley’s Brian Nowak figures creators will get 55% of the revenue for ads they place.
On April 26, Google parent Alphabet ( GOOGL ) missed on Q1 results as TikTok took a toll on YouTube revenue.Earlier in April, Snapchat parent Snap ( SNAP ) also missed views.
Apple Costs Meta $10 Billion Facebook has been warning since late 2020 about the challenge created by Apple’s privacy change.But the shift that began with the iOS 14.5 update last spring had a modest impact until Q4.Apple now requires apps downloaded through the App Store to let users opt in or out of tracking their activity across third-party sites.With the bulk of users opting out, businesses are less able to narrowly target advertising to consumers likely to be interested in their products or services.
“We believe the impact of iOS overall as a headwind on our business in 2022 is on the order of $10 billion,” Wehner said on Feb.
2.
The brunt of the hit to year-over-year growth is likely to be felt in the first half of 2022, since the impact of the iOS change wasn’t really felt until the second half of 2021.
Meta is working on changes to make its ad-targeting more effective, despite the impact of privacy-related changes.Using artificial intelligence to predict consumer interest as a substitute for tracking user activity isn’t a quick fix.However, analysts will be eager to hear if Meta offers a timeline for improvement.
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Meta Stock Analysis Meta stock fell to a two-year low of 169 on April 27, just before Q1 earnings, well off their Sept.1, 2021 all-time high of 384.33.Shares ran up nearly 18% the next day, after soon reclaimed the 50-day moving average.FB stock has fallen back slightly below the 50-day line.
Meta Platforms, still known to many as Facebook, will change its ticker from FB to META in the first half of 2022, following the Oct.
28 name change.FB stock was a market leader through August, as indicated by its rising relative strength line, which tracks its progress vs.the S&P 500.However, the down-trending RS line — which long preceded its earnings warning — had offered a warning sign for investors not to go fishing for a bargain.
Meta shares came under pressure after the company’s Sept.22 blog post warning of a “greater impact” from Apple’s recent iOS updates.
Then pressure built on FB stock as members of Congress launched a probe based on the Wall Street Journal’s Facebook Files series, informed by thousands of pages of documents from whistleblower Frances Haugen.
FB stock’s 50-day moving average crossed below its 200-day line in December, another technical warning sign.
Still, FB stock had weathered broad market volatility and even briefly regained its 50-day line ahead of the company’s Feb.
2 earnings.Then the bottom fell out, once again demonstrating the danger of buying a stock ahead of earnings.And the bottom has kept falling, a reminder that buying stocks after they crash is a dangerous strategy.
Facebook’s Metamorphosis Facebook’s Oct.28 name change to Meta Platforms made sense for multiple reasons.
It’s probably no coincidence that it happened as Facebook was being treated as a political pariah, alleged to profit from pushing politically divisive content and harming vulnerable teens.The name change also may have been a bid to get distance from Facebook’s less-than-cool image among young people.”You won’t need a Facebook account to use our other services,” CEO Mark Zuckerberg said in introducing the Meta name.
But the Meta name also speaks to Zuckerberg’s broader ambitions to lead social networking into the “next frontier.”
That frontier will be three-dimensional, allowing for immersive experiences.”The defining quality of the metaverse will be a feeling of presence — like you are right there with another person or in another place,” he wrote.
“Our hope is that within the next decade, the metaverse will reach a billion people, host hundreds of billions of dollars of digital commerce, and support jobs for millions of creators and developers.”
One more key reason Zuckerberg wants to produce the hardware for that next frontier: He wants to help set the rules, rather than have the likes of Apple set standards..