Amid the recent tech selloff, shares of Meta Platforms (META) shares have been punished, falling 39% and 46% in the respective six months and nine months. Down 45% year to date and 47% over the past year, the shares have lost more than 55% since reaching its 52-week high of $384.
The parent of Facebook has suffered from, among other things, slowing user growth, and advertising growth at its core Facebook and Instagram products have scared investors away. But the company last quarter produced user metrics that weren’t as bad as expected. Is the recent decline an overreaction? Now could be a good opportunity to buy on the dip as META stock appears significantly undervalued when compared to its large-cap peers.
The social media giant will report second quarter fiscal 2022 earnings results after the closing bell Wednesday. On the heels of a brutal quarter from both Snapchat parent Snap (SNAP) and Twitter (TWTR) which released Q2 results that fell short of analysts’ expectations, the market is bracing for another tough quarter from Meta’s digital ad business. But even amid inflationary cost pressures and struggles with daily active users, Meta can still beat profit expectations which are low.
The company guided for Q2 revenue in the range of $28 billion to $30 billion, suggesting a sequential revenue increase of up to $2 billion. What’s more, CEO Mark Zuckerberg is betting heavily on the Metaverse which, according to some estimates, is expected to grow as much as $2 trillion annually. Meta's advances in virtual reality with its Oculus VR headset (Meta Quest) gives it a leg up on the competition. The company on Wednesday will nonetheless need to show improvements in its Reality Labs, demonstrating that the business can emerge as Meta’s profit center that it is expected to become.
For the three months that ended June, the Menlo Park, Calif.-based company is expected to earn $2.61 per share on revenue of $29.03 billion. This compares to the year-ago quarter when earnings came to $3.61 per share on revenue of $27.89 billion. For the full year, ending in December, earnings are projected to decline 15% year over year to $11.67 per share, while full-year revenue of $124.91 billion would rise 5.9% year over year.
The projected year-over-year revenue increase of just 4% would be the company’s slowest growth rate in more than a decade. Since Apple’s (AAPL) iOS privacy changes, which made it more difficult for apps to track user data, Facebook’s advertising business has had to adjust. Analysts, likewise, have since reset Facebook’s expectations with more conservative numbers, which is evident in the Q2 consensus estimate. But it’s no guarantee that the stock will react favorably even if Meta were to surpass expectations.
In the first quarter, Meta delivered $27.9 billion in revenue which rose 7% year over year, beating estimate of $27.3 billion, though it reflected a growth deceleration of 13 percentage points from the prior quarter. Q1 adjusted EPS was also above estimates by 17 cents, coming in at $2.72 per share. Facebook daily active users were 1.96 billion on average for March, up 4% year over year, while Family daily active people was 2.87 billion on average for March, rising 6% year over year.
During the quarter, ad impressions delivered across Facebook, Messenger, Instagram, WhatsApp increased by 15% year over year, though there was an 8% decline in the average price per ad. It wasn’t a great quarter by Meta's standards, but the company improved several key metrics. On Wednesday, the market will want to see continued improvements in the digital ad business which is still the company’s bread-and-butter profit segment.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
Read Richard's Bio