Meta Platforms (META) Third Quarter 2023 Results: What to Expect

AAmid the recent tech selloff, shares of Meta Platforms (META) were punished, falling 35% and 58% in the respective six and nine months. Down 61% since the start of the year and 62% since a year ago, it seems that the market no longer believes in the company’s growth capacities.

Facebook’s parent company suffered, among other things, from slowing user growth and advertising growth for its core Facebook and Instagram products, both of which spooked investors. But the company produced user metrics last quarter that weren’t as bad as expected. However, on the heels of another rough third quarter for Snapchat parent Snap (SNAP) which reported third quarter results below analysts’ expectations, the market is bracing for another tough quarter from Meta’s digital advertising business.

For Meta, however, even amid inflationary cost pressures and struggles with daily active users, the company can still exceed low earnings expectations. At the start of the quarter, Meta stock was among Citigroup’s top picks in the internet space. Analysts Ronald Josey said Meta presented a “compelling” risk/reward opportunity at current levels. Josey, who has a buy rating on the stock with a target price of $222, implying a 67% upside, says third quarter expectations are “relatively subdued given industry discussions regarding engagement, social media competition and monetization”.

In other words, the analyst thinks Meta should easily beat Street’s estimate. As such, this could be a good opportunity to buy on the downside, as Meta stock looks significantly undervalued relative to its large-cap peers. It will undoubtedly be a pivotal quarter for the company on Wednesday. It goes without saying that the market will definitely want to see improvements in the digital advertising industry.

For the three months ending in September, the Menlo Park, Calif.-based company is expected to earn $1.89 per share on revenue of $27.41 billion. That compares to the year-ago quarter where earnings were $3.22 per share on revenue of $29.01 billion. For the full year, ending December, earnings are expected to decline 28% year-over-year to $9.79 per share, while annual revenue of $117.21 billion is down 0. 6% year over year.

The slight contraction in full-year revenue underscores the challenging digital advertising environment the company has navigated. Rising inflation, which has forced companies to cut advertising budgets, is also of concern and could negatively impact the company’s revenue for the quarter just ended. Beyond these macro headwinds, Meta’s advertising business is still recovering from Apple’s iOS (AAPL) changes that made it more difficult for Meta to use consumer behavior ad targeting, making it more costly for Meta produce results for advertisers.

In the second quarter, the company’s digital ad revenue, which made up more than 99% of total revenue, fell 1.5% year-over-year to $28.15 billion. The drop is stark given CEO Mark Zuckerberg’s bet on the Metaverse through his Reality Labs initiatives. However, Reality Labs’ funding comes from revenue generated by the digital advertising industry. It’s still a solid bet given that estimates suggest Metaverse can grow up to $2 trillion a year, but there’s a long way to go from here to there.

Meta’s advances in virtual reality with its Oculus VR (Meta Quest) headset give it a leg up on the competition. But given recent difficulties in the advertising industry, the company has chosen to slow down its investments in certain Reality Labs projects, in the hope of boosting its profits. As such, on Wednesday, beyond the numbers and results of the digital advertising sector, management will have to show improvements in its Reality Labs, demonstrating that the company can become the profit center of Meta that it should. become.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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