META STOCK OUTLOOK:
- Meta Platforms, Facebook’s parent company, will announce quarterly results on Wednesday after the closing bell
- Analysts expect earnings per share of $2.58 on revenue of $28.28 billion
- If earnings and corporate guidance disappoints expectations, Netflix’s tragic fate could befall Facebook
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Meta Platforms (FB) stock prices have plummeted from their September 2021 highs, falling more than 50% from those levels, pressured by slowing growth in the business, privacy changes to Apple’s iOS, stronger competition, doubts about the metaverse venture and broad-based tech sector weakness amid rising interest rates and soaring inflation. The sell-off, however, picked up pace in early February after the company posted worse than anticipated Q4 2021 earnings, recorded its first-ever drop in daily user numbers and offered disappointing forward-looking commentary.
Meta will have a chance to redeem itself on Wednesday after the closing bell when it announces its Q1 2022 results. Investors expect earnings per share of $2.58 on revenue of $28.28 billion, but many analysts warn performance could underwhelm forecasts for the following reasons:
- Young people, Meta’s most lucrative advertising demographic, continue to leave Facebook and Instagram in droves, opting for more engaging video apps like TikTok
- Daily active users could trend lower as people begin to spend less time on social media platforms, with the global economy recovering from the pandemic and mobility rebounding sharply
- Meta has been struggling to monetize Reels videos (the product generates less revenue than Feeds and Stories)
- Metaverse, which faces a long road to profitability, is sucking away resources from the company’s bread and butter: Facebook and Instagram
- Apple and Google's pivot to stricter consumer privacy measures creates headwinds for ad pricing growth
Source: EarningsWhispers
WHAT WILL MATTER FOR THE MARKET?
Traders should pay attention to advertisement revenue growth and outlook commentary, but more importantly daily active users’ numbers. In Q4 2021, Facebook's DAUs stood at 1.929 billion, up 5% year-over-year, but down 0.1% quarter-over-quarter. The markets did not like this sequential decline and the stock price plunged more than 25% the day after the company released its financial statements with this information.
Looking ahead, if DAUs do not stabilize and retreat more than expected in the wake of Russia's decision to ban Meta products in the country, FB stocks could suffer, rivaling the Netflix selloff last week, when the streaming service's shares sank more than 35% after announcing a loss of 200,000 subscribers and issuing weak guidance.
For a long time, tech darlings have commanded higher valuation multiples than the broader market due to expectations that they could continue to deliver strong earnings growth to shareholders regardless of the economic environment, but if their fortunes begin to change, investors may think twice about paying a premium to own their stocks.
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---Written by Diego Colman, Contributor
