After the tumultuous year that 2022 has been for Meta, there’s some good news that came through their Q4, 2022 earnings report.
Meta, even if only slightly, has exceeded the revenue estimates put forth by analysts and managed to perform better than the base range of its weak Q4 outlook revenue that it had presented in the Q3 earnings report.
Meta’s announcement of Q3 2022 results made their shares plummet 24.5% but after the Q4 2022 earnings reports, Meta’s shares jumped 20% and if the gain holds, this could be the biggest intraday surge for Meta in a decade. But this might just be because of their announcement of a $40 billion increase in their share repurchase authorization.
Another good news for Meta, especially when the world seems to believe that emerging retail media networks and Meta’s competitors are going to steal its dominance soon, is that they still have a strong hold on their daily active users.
As per the report, Meta’s daily active users of their FoA (family of apps) is 2.96 billion on average for December 2022, an increase of 5% year on year and Facebook’s Daily Active Users (DAU) is 2 billion on average as per December 2022 an increase of 4% year-on-year.
Though there has been a reported 4% decline in Meta’s revenue in Q4 2022 as compared to Q4 2021 and a 1% Year on Year, what is keeping their chins up is that their social media rivals are not doing that great themselves. Snap Inc. (parent company of Snapchat) also presented their earnings report for Q4 and immediately saw their shares slide 14% in extended trading on Tuesday. Their Global Daily Active users were also reported to be 375 million versus 375.3 million expected, according to StreetAccount. This is not even comparable to Meta’s audience count for its FoA. Meta may not grow its ads revenue as fast as the market was used to in the past but it is still growing and is a mammoth.
Mark Zuckerberg has caught the cost-cutting bug. To cut its costs and expenses which have risen 23% Year over Year, Meta is closing and “consolidating” offices and planning more layoffs in 2023. He told the investors that 2023 would be the “year of efficiency.”
Meta’s consistent vision to build up on their AI discovery engine, Ads, and Business Messaging seems to be bets that might help the company’s major revenue-generating segments, but the success of Metaverse (which Meta is putting a lot of effort into) is still to be seen. It’s not the flat ad revenue that makes the market jittery but Meta’s answer seems to lie on an experiment that the market doesn’t believe in. But don’t count Zuck out.
The Bad and the ugly
Even though the first part of this write-up (and Meta’s Q4, 2022 press release) would have you believe, it’s not all unicorns and rainbows for Meta.
This has been the third consecutive year of Meta’s revenue decline and their net income bars don’t look that good too. Meta’s net income never reached the quarterly peak of Q4 2020 in the last 2 years, all quarters of 2022 have seen drastic drops when compared to quarters in the same periods in 2021.
As per the Q4 earnings report, the cost and expenses have increased 22% in Q4, 2022 compared to Q4, 2021 and there would be more restructuring costs that have been estimated for 2023 as well.
Meta’s advertising segment which is the major revenue generator for the company has seen a decline from $32.64 billion in Q4 2021 to $31.25 billion in Q4 2022. Though Meta is investing heavily in Ads targeting, audiences and new formats the competition is stiff and any wrong bets may cause the revenues to go down for the upcoming quarters too. A blunted targeting machine and a need for more intent signals is driving the tailwinds to retail media networks. The earning call report only focuses on increasing impressions and decreasing ad costs but the complete unavailability of conversion-based metrics for Meta’s Family of Apps is something that needs to be looked into.
Another thing (and it’s probably one of the most important ones) that is causing concerns for investors is the focus shift of the company towards the Metaverse and Reality Lab segment as a whole.
Meta’s vision of the Metaverse is an expensive trial and it doesn’t seem to be working so far.
Since this image was released in Aug 2022, everyone seems to be asking just one question — How has Meta sunk tens of billions of dollars into a VR world that looks no better than game graphics from the mid-nineties? Why would Meta win the hardware battle?
Meta's Reality Labs segment, which includes its virtual and augmented-reality hardware such as its headsets, as well as software and related content, posted a fourth-quarter operating loss of $4.28 billion, compared with a loss of $3.3 billion a year earlier.
According to Meta’s head of VR Andrew Bosworth:
“As reflected in our Q3 results, about 80% of Meta’s overall investments support the core business, with the other 20% going toward Reality Labs. It’s a level of investment we believe makes sense for a company committed to staying at the leading edge of one of the most competitive and innovative industries on earth.”
Even with the losses, Zuckerberg is adamant on investing heavily with money and efforts on these initiatives. Now whether it’s a portal (IYKYK) to a new world for Meta that would give them a leap ahead and make it extremely difficult for its competitors to catch up to or whether it’ll cause the end of Meta as we know it, only time will tell. The time is ticking and the talking heads are talking.
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