ii view: Meta Platforms beats forecasts but warns on outlook

Third-quarter results to 30 September

• Revenue up 23% to $34.1 billion
• Net income up 164% to $11.6 billion
• Adjusted earnings per share up 168% to $4.39
• Cash and cash equivalents of $61.1 billion

Guidance:

• Expects fourth-quarter revenue of between $36.5 billion to $40 billion

Chief Executive Mark Zuckerberg said:

"We had a good quarter for our community and business. I'm proud of the work our teams have done to advance AI and mixed reality with the launch of Quest 3, Ray-Ban Meta smart glasses, and our AI studio."

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ii round-up:

Facebook owner Meta Platforms Inc Class A (NASDAQ:META) detailed sales and earnings which beat Wall Street hopes as corporate demand for advertising rose and an ongoing efficiency drive reduced costs. 

Third-quarter sales rose by close to a quarter year-over-year to $34.1 billion, pushing earnings up by 168% to $4.39 per share and way past analyst forecasts for $3.63. Management flagged expectations for current fourth-quarter sales to grow by around a fifth year-over-year, but offered an unusually wide revenue range of between $36.5 billion and $40 billion, given some recent softening in advertising demand following recent events in the Middle East. 

Shares in the S&P 500 company fell around 3% in after-hours US trading having come into this latest news up 150% year-to-date. AI computer chip maker NVIDIA Corp (NASDAQ:NVDA) is up 185% in 2023 and Google search engine and advertiser Alphabet Inc Class A (NASDAQ:GOOGL) is up 40%. The S&P 500 itself is up close to a tenth in 2023. 

Meta flagged a 3% year-over-year increase in its Facebook monthly active users to 3.05 billion, with ad impressions across its broader range of apps including Instagram and WhatsApp growing by almost a third from this time last year. 

Like fellow tech companies including Microsoft Corp (NASDAQ:MSFT), Apple Inc (NASDAQ:AAPL) and Alphabet, Meta has been investing in its AI computing abilities, with management pointing to its efforts in helping attract major retailers to its app-based ads. 

Group costs for the quarter fell 7% versus this time last year to $20.4 billion as job losses earlier this year reduced staff headcount by almost a quarter to 66,185. Losses at Meta's Reality Labs division including its Virtual Reality (VR) gaming headset and metaverse interests now total $21 billion year-to-date. 

Broker UBS cheered both the revenue gains and costs discipline seen during the quarter, reiterating its ‘buy’ stance on the shares. Fourth-quarter results will likely be announced late January or early February. 

ii view:

Founded in 2004 by current head Mark Zuckerberg, Meta generated revenues of $116.7 billion in 2022. Social media apps including Facebook, Instagram and WhatsApp generate most of its revenue, with its Reality Labs business coming in at under 2% last year. Geographically, the US accounts for its biggest slug of sales at around two-fifths, followed by Asia-Pacific and Europe at just under a quarter each and the rest of the world the balance. 

For investors, cautious management outlook comments regarding a hit to advertising demand given geopolitical events cannot be ignored. Legal battles regarding addiction to using its apps warrant consideration, as do ongoing government concerns regarding its possible impact in elections and misinformation. Costs generally for businesses also remain elevated, while the Reality Labs business is losing money.

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On the upside, Meta runs a diverse range of social media apps around the world. Management initiatives to increase efficiency are now shining through, money is being invested in both AI and the metaverse persist, while a share buyback programme continues, with $3.7 billion of stock acquired in this latest quarter. 

Meta stock has made a remarkable recovery from the 2022 tech crash, which once again raises questions about tech sector valuations. However, the company is achieving and in many cases exceeding expectations. If that trend continues, the consensus analyst estimate of fair value at over $360 per share begins to look more realistic. 

Positives

• Broad base of 10 million plus advertisers
• Focus on costs

Negatives

• Uncertain economic outlook
• A series of scandals have previously impacted

The average rating of stock market analysts:

Buy