Earnings preview for Meta

Meta Platforms will report the third-quarter earnings after the US markets close on 25 October, which will be the morning of 26 October in the Asia-Pacific time zone. Meta is the second-best performer this year, up about 168% year-to-date, after Nvidia, whose shares have doubled amid the AI frenzy. Meta’s massive cost-cutting measures and a rebound in its ad revenue boosted the net income, while the loss in Reality Lab may increase for the rest of the year. Below are the key aspects that may impact Meta’s third-quarter earnings.

Q2 Earnings Review

Meta returned a double-digit revenue growth for the first time since the fourth quarter of 2021 in the second quarter. The overall revenue rose 11% to $32 billion, and earnings per share were $2.98, up 21% annually. Meta shrugged off three consecutive negative quarterly growth in the first quarter as the company did the largest-ever layoffs amid its “year of efficiency” goal. The family of apps, which include Facebook, Instagram, Whats App, and Reels, generated nearly $32 billion in revenue, up 12% year on year. However, the loss in Reality Labs widened and offset some of its profit. Its net income came to $7.9 billion, up 16% year on year. The Daily Active Users (DAU) was 2.06 billion, up 5% from a year earlier.

The loss in Reality Lab, which develops virtual reality and augmented reality technologies, increased to 7.7 billion in the first six months, with the total loss hitting more than $21.3 billion since the beginning of 2022.

Business growing focus – AI Chatbot, Llama 2

Since Microsoft’s launch of ChatGPT, all the other tech companies have joined the AI race. Meta scaled back its investment in Metaverse, or its Reality Lab, through headcount reduction while increasing spending on AI development. The company expects “total capital expenditures to grow in 2024, driven by investments across both data centers and servers, particularly in support of the AI work.” Meta released its AI chatbot, LIama 2, on 18 July, which is an open-source large language model aiming at generating family-friendly output through reinforcement learning.  

Meta’s core business remains in its ad income, which accounts for 98% of its overall revenue. Hence, the family of apps is expected to take the AI tailwind as its AI chatbot, Liama 2, may gather tractions from users, in turn improving the ad revenue. In the second quarter, Meta’s ad impressions increased by 34% year on year, and the average price per ad decreased by 16% year on year. This makes its user growth another key matrix in the earnings report, which is expected to maintain stable growth in the coming quarters.

Meta’s CFO expects the third-quarter revenue to be between $32 billion and $34.5 billion, representing about a 15% year-on-year increase. The company also said the expense would rise to between $88 billion to $91 billion for the full year 2023 due to legal-related expenses, the $4 billion of restructuring costs. The losses in Reality Lab are expected to widen “meaningfully” in 2023.  

Forecasts by Bloomberg

Earnings per share: $3.73, + 127.6% annually

Revenue: 33.51 billion, + 21% annually

Net income, Adj: 9.46 billion, +115% annually

Daily Active Users (DAUs): 2.07 billion, +4.2% annually

Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.