Shares of the social media behemoth Meta Platforms (NASDAQ: FB) rallied 18.3% during extended trading. The rally was driven by the first-quarter results, which beat earnings expectations and missed revenue estimates. The FB stock closed the day down 3.3% at $174.95 on April 27, in anticipation of the results.
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Meta’s revenue marked one of the slowest growths ever since its listing, and it also warned of softer revenue in the second quarter due to the Ukraine war, which has resulted in a slow-down in both advertising revenue and user growth. Add to that the iOS policy changes, the uncertain regulatory and geopolitical environment, and enhanced competition, all of which have been hurting its performance for quite some time.
Meta founder and CEO, Mark Zuckerberg, said, “We made progress this quarter across a number of key company priorities, and we remain confident in the long-term opportunities and growth that our product roadmap will unlock.”
Meta’s Mixed Q1 Results
Meta’s Q1 diluted earnings of $2.72 per share (EPS) fell 18% year-over-year but came in 16 cents higher than analysts’ estimates of $2.56 per share.
However, sluggish year-over-year revenue growth of 7% to $27.91 billion fell short of analyst estimates of $28.2 billion. Furthermore, on a sequential basis, revenue declined 17.1% compared to Q4FY21.
Advertising revenue, which is the major revenue contributor and is derived from the Family of Apps (FoA) segment, grew more than 6% year-over-year to nearly $27 billion.
Meanwhile, compared to the same period last year, the Reality Labs revenue segment, which includes augmented and virtual reality-related consumer hardware, software, and content, jumped more than 30%.
Additionally, Meta repurchased a total of $9.39 billion worth of shares in Q1, and as of quarter-end had $29.41 billion available for repurchase.
User-Base Metrics
The parent company of Facebook, WhatsApp, Instagram, and Messenger reported daily active people (DAP) growth of 6% to 2.87 billion, and monthly active people (MAP) rose 6% to 3.64 billion compared to Q1FY21.
Facebook’s daily active users (DAUs) popped 4% year-over-year to 1.96 billion, and monthly active users (MAUs) grew 3% to 2.94 billion.
The FoA segment registered a 15% jump in ad impressions and an 8% decline in the average price per ad compared to the prior-year period.
Bleak Outlook
Continuing with the Q1 momentum, Meta’s CFO warned of a slowdown in revenue in Q2, falling in the range of $28 billion to $30 billion, while the consensus estimate is pegged at $30.6 billion.
Additionally, the CFO stated that they intend to cut down on total expenses for 2022, which projected to be between $87 billion and $92 billion, compared to the previous guidance of $90 billion to $95 billion, the majority of which will be expensed in the FoA segment.
Analysts’ View
Following FB’s results, JMP Securities analyst Andrew Boone maintained a Buy rating on the stock with an unchanged price target of $265, which implies 51.5% upside potential to current levels.
Boone values FB stock at 14.5x its 2023 estimated GAAP EPS, which he believes is justified “given Facebook’s highly engaged and scaled user base, best in class digital advertising tools, and high profitability.”
Furthermore, the analyst believes that this may be the “last significant estimate reduction based on the transition to Reels and the iOS 14.5 update.”
Despite the increasing competition from rival TikTok, Boone is highly encouraged by FB’s multiple levers, including social media tools and Reels, which can reaccelerate revenue growth.
Notably, Boone believes that advertisers have yet to channel Reels for their promotions, and once done, it will provide a big boost for Meta’s advertising revenue over time.
Other analysts on the Street are cautiously optimistic about FB stock with a Moderate Buy consensus rating, which is based on 32 Buys, 13 Holds, and one Sell.
At the time of writing, the average Meta Platforms price target was $308.83, which implies 76.5% upside potential to current levels. Meanwhile, FB stock is down 48.3% year-to-date.
FB Website Traffic
TipRanks’ Website Traffic Tool provided insight into Meta’s Q1 performance well ahead of its earnings.
According to the tool, in Q1, Meta’s website traffic visits to its Family of Apps (FoA), which includes Facebook, Instagram, Messenger, and WhatsApp, showed an increase in total visits from the previous quarter, and from the same quarter for the same period last year.
Another useful insight that correlates directly to what Meta reported is its “Advertising Revenue by User Geography.” According to the tool, in Q1, Meta’s website traffic visits for the business domain (buisness.facebook.com), which advertises on Facebook use to manage their campaigns, declined 9.74% sequentially across all of its devices globally.
Notably, this trend also correlates with the sequential decline in advertising revenue reported by the company in Q1FY22.
Concluding Note
After reporting disappointing Q4 results, Meta gathered momentum and kicked-started the year on a positive note. However, sluggish revenue growth still remains a spoiler. As analyst Boone noted, this might be the bottom for Meta’s bad days. However, it might be a good choice to stay on the sidelines for the near term and await till the tides fully turn in Meta’s favor.
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