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It’s safe to say that Meta Platforms, Inc. hasn’t had the smoothest of rides since its high-profile rebranding back in October 2021. After the release of its fourth-quarter earnings earlier this year, investors were left contemplating whether or not the stock was still a good buy, with many deciding they were not confident in the company’s future.
As a result, Meta’s stock price tumbled, losing over $230 billion in market value in one day, earning its place in the history books for the largest single-day sell-off in stock market history. The drop took place after Meta reported earnings per share of $3.67, which fell short of analyst estimates for only the second time in 12 quarters.
On top of this, Meta CEO Mark Zuckerberg stated that his company was going all in on the metaverse. While this statement alone may not have been enough to warrant such a large sell-off, his comment was used to justify Meta’s investment in its Reality Labs division, which lost more than $10 billion in 2021.
As expected, investors were dissatisfied with this outcome, which has left shareholders and potential investors interested in how the company will perform in the following quarter.
Q1 Earnings Preview
The markets have been particularly volatile of late, largely due to the ongoing global pandemic and Russia’s invasion of Ukraine.
However, earnings season is upon us, which means companies have begun to release their quarterly reports. Meta is due to release its report on April 27, and with the stock down by almost 38% YTD (year-to-date), investors will have a keen eye on how the company has performed since its record-breaking losses last year.
With the report less than a week away, let’s look at a few key talking points regarding Meta that are worth considering before purchasing the stock.
Increasing digital traffic competition
Despite Facebook holding a top-three spot on the UK top websites ranking chart, Meta is still coming under intense pressure from ByteDance’s TikTok as the Chinese social media giant continues to capture a large chunk of the market share.
This led Meta to reveal that Facebook’s daily active users fell from the previous quarter for the first time as a public company.
Zuckerberg himself has acknowledged that Facebook faces an “unprecedented level of competition” from TikTok. In response, Zuckerberg has instructed the Meta team to focus on its short-form video feature, Reels, to get out of its rut and retain its user base. Coupled with rising costs and revenue growth pressures, this is certainly a cause for concern for the California-based company.
The impact of iOS on Meta revenue
Apple’s recent iOS privacy changes are expected to have a negative impact on Meta’s revenue.
The iPhone system modifications significantly impacted ad tracking and measurement across the entire Apple ecosystem, making it more difficult for Meta to implement targeting and measurement on Apple devices.
Meta stated that the changes disproportionately affect smaller businesses during the Q4 conference call. Fortunately for investors (and advertisers), Meta seems to be working on improving things in the near term via a workaround called “aggregated event measurement.”
However, it remains to be seen how effective the solution will be – and how increasingly data-savvy investors will respond.
Navigating a transitional phase
As the social giant continues to regroup following reputation damage caused by leaked documents last fall, it’s important to note that Meta will be navigating through this unprecedented transitional phase for quite some time.
It’s no secret that the company is placing a large wager on the metaverse’s success, popularity, and future adoption. Of course, this wager is made evident by the company’s continuing investment in Research Labs, which cost the company dearly in the previous earnings report.
The added expenses from research and design in the metaverse will put the company’s near-term financial success at risk without any guarantee of a payoff in sight.
Furthermore, Meta’s prioritization of its Reels feature in response to rising competition from TikTok may provide additional problems for the company. The primary concern here is that Reels monetizes at a slower pace than Facebook and Instagram’s other features, such as news feed and stories since Reels shows fewer advertisements. In turn, this means less revenue is being generated.
Ultimately, this puts Meta at risk of underperforming in the upcoming earnings report.
Wrapping up
There’s no denying that Meta is currently in troubled waters. The long-reining social media king is under pressure on multiple fronts, and its big gamble on the metaverse is far from a sure bet.
However, it’s important to remember that Meta Platforms is still the most dominant social media company in the game, still drawing gargantuan engagement across its websites and mobile apps – and yielding major profits along the way.
Moreover, the company’s management expects revenue growth of 3% to 11% for Q1. If they manage to hit the upper end of these estimations, it could result in a nice payoff for investors. Still, we will have to wait until April 27 to see if that is a reality and how investors react.
