Shares of social media giant Meta Platforms (NASDAQ: META) are down almost 6% so far in pre-market trading today after the company announced its second-quarter results on July 27. Meta Platforms reported revenue of $28.82 billion and adjusted earnings per share of $2.46 in the June quarter. Comparatively, analysts forecast Meta to report revenue of $28.94 billion and earnings of $2.61 per share in Q2.
The company's revenue was down 1%, while adjusted earnings fell by 32% year-over-year in Q2. It was the first ever quarterly revenue decline for the tech heavyweight as a publicly listed company. Meta also forecast revenue between $26 billion and $28.5 billion in Q3, well below consensus estimates of $30.52 billion. Meta's revenue and earnings miss, coupled with its tepid guidance, dragged the stock lower in pre-market trading.
Let's see what impacted Meta Platforms in the quarter that ended in June 2022.
Meta stated Facebook's daily active users rose 3% to 1.97 billion while monthly active users were up 1% at 2.93 billion in Q2. Further, ad impressions delivered across its family of apps rose 15%, while the average price per ad fell by 14% year-over-year. Lower ad revenue amid a highly challenging macro environment is expected to negatively impact the top-line of digital ad companies, including Meta, Alphabet, and Snapchat, in the near term.
Meta emphasized its outlook for Q3 reflects a weak demand environment for ads primarily driven by macroeconomic uncertainty. Revenue for Reality Labs is also expected to be lower in Q3 on a sequential basis. Further, a strong U.S. dollar might drag sales lower by 6% in the September quarter.
To combat an inflationary environment, Meta Platforms will lower its expenses. It now estimates total costs between $85 billion and $88 billion this year, compared to earlier forecasts of expenses between $87 billion and $92 billion. In addition, the company has reduced its hiring and expense growth plans to reflect its priorities.
Meta stock is down close to 60% from all-time highs, valuing the company at $425 billion by market cap. The company surpassed the trillion-dollar valuation a few months back but has since underperformed the broader markets considerably.
While enterprise ad spending will be lower next year, Meta CEO Mark Zuckerberg claimed engagement trends on Facebook and Instagram have been stronger than anticipated. Its revenue trajectory has compelled Meta to reduce headcount growth over the next 12 months.
Meta is also facing competition from short-form video platform TikTok, which has gained massive traction in recent years. In the earnings call, Zuckerberg confirmed that annualized revenue for Instagram Reels had reached $1 billion. Meta has invested heavily in Instagram Reels to compete with TikTok, but the former has failed to generate sales as efficiently as Instagram's primary news feed or even Instagram Stories.
Further, Meta Platforms aims to benefit from a first mover advantage in the metaverse segment. Its Reality Labs business develops metaverse-related technology and reported sales of $452 million in Q2. But losses for the business were much higher at $2.8 billion.
Meta's net income was the lowest in the last nine quarters and is a cause of concern for investors. Analysts expect sales to rise by 5.6% to $124.5 billion in 2022, while adjusted earnings might fall by 15.3% to $11.67 per share. Meta stock is currently valued at less than 4x forward sales and a price to earnings multiple of 13.7x, which is quite attractive.
It might be a good time to buy shares of the largest social media company in the world right now, especially if Meta can rise from the ashes once economic conditions improve.
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