Facebook (Meta) Stock Opens Higher after Quarterly Report & User Growth, but Metaverse Remains a Money Pit

  • FB.us
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Meta Added Users in Q1

Markets had reacted negatively to Meta's previous quarterly report in early February and had sent the stock to a freefall, but FB.us rises today, after Wednesday's latest results for Q1 2022. Overall, we feel that the results were not particularly good, but there were some bright spots, such as the increased number of users of the core app and the family.

Facebook's Active Daily and Monthly Users (DAU & MAU) have been stagnating recently, as more apps such as TikTok draw the crowd, but yesterday's report showed a notewrothy rise. Facebook had 1.96 billion DAUs on average and 2.94 billion MAUs for March 2022, up from 1.96 billion and 2.91 billion respectively for December 2021. [1]

The Family of Apps which also includes Instagram, Messenger, and WhatsApp, had 2.87 billion Daily Active People (DAP) on average and 3.64 billion Monthly Active People (MAP) for the same period, higher than the 2.82 billion and 3.59 billion respectively for December 2021.

Revenues within Expectations, EPS Beat Estimates

Meta's Total Revenues grew an unimpressive 7% year-over year in the first quarter of the year, to $27.908 billion. This figure matched the lower range of the firm's projection for $27-29 billion, but was significantly lower than the $32.639 billion generated during the previous quarter.

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The company now expects $28-30 billion of Revenue for the current second quarter of 2022, which reflects "a continuation of the trends impacting revenue growth in the first quarter, including softness in the back half of the first quarter that coincided with the war in Ukraine".

Net Income dropped 21% year-over-year to $7.465 billion, while the $2.72 Earnings/share marked an 18% year-over-year decline, despite beating baseline estimates.

The Metaverse Loses Money

The social media giant changed its name in October into Meta Platforms in order to highlight the focus on bringing the metaverse into life and also changed the way the way it reports its financial results to illustrate that. The fourth quarter report, was the first one under the new scheme, including two segments: the Family of Apps and the Reality Labs - with the latter being the one responsible for delivering the Metaverse.

As we had commented on our Top 10 Stocks for Q2 2022 – Part 2, the Metaverse "may well be the next best thing, but the firm is far from monetizing on it". Reality Labs operated at a loss of $10.193 billion in 2021, $3.304 billion of which in the last quarter of that year, while yesterday's release revealed the Loss of $2.960 in Q1 2022.

During the ensuing earnings call, CEO Mark Zuckerberg recognized that "it's expensive to build this" and that the company makes "large investments" to deliver on this vision, but he added that "this is laying the groundwork for what I expect to be a very exciting 2030s". [2]

The firm has made some steps on monetization, since it announced earlier in the month that it is testing in-app purchases on Horizon Worlds - Meta's virtual reality app and the centerpiece of the metaverse development plan. [3]

Advertising Headwinds

Meta Platfroms has been focusing on short videos and mainly Instagram Reels, in order to compete with TikTok. Mr Zuckerberg is optimistic around this feature, noting that it makes up more than 20% of the time that people spend on Instagram.

However, the shift towards short-term video is a drag on advertising revenue, Meta's main source of revenue, something the CEO acknowledged, saying that "Reels monetization is less than feed or stories, but I expect that will improve over time". [2]

Two main sources of headwinds to advertising, are Apple's iOS privacy changes as well as Europe's Digital Markets Act (DMA) which aims to regulate Big tech.

In February, Meta's CEO had recognized the impact of the aforementioned factors, saying that "With Apple's iOS changes and new regulation in Europe, there's a clear trend where less data is available to deliver personalized ads", while CFO Dave Wehner had projected an around $10 billion headwind from the iOS changes. [4]

During Wednesday's earnings call, the CFO reiterated this iOS privacy impact and noted that this has been factored in on the Q2 outlook. On the DMA front, COO Sheryl Sandberg recognized the challenges the regulation poses on the industry, but said it is in line with expectations.

Stock Reaction

After the previous results in early February, FB.us had collapsed, but jumps around 15% at today's open, as investors react positively to Wednesday's earnings report and perhaps see an opportunity given the heavily discounted price.

On Wednesday it had dropped to the lowest level in two years, heading towards a losing month and remains to be seen, if yesterday's results can fuel a larger recovery.

Nikos Tzabouras

Senior Market Specialist

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 28 Apr 2022 https://investor.fb.com/investor-news/press-release-details/2022/Meta-Reports-First-Quarter-2022-Results/default.aspx

2

Retrieved 28 Apr 2022 https://s21.q4cdn.com/399680738/files/doc_financials/2022/q1/Meta-Q1-2022-Earnings-Call-Transcript.pdf

3

Retrieved 28 Apr 2022 https://about.fb.com/news/2022/04/testing-creator-monetization-horizon-worlds/

4

Retrieved 05 Jul 2022 https://s21.q4cdn.com/399680738/files/doc_financials/2021/q4/Meta-Q4-2021-Earnings-Call-Transcript.pdf

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