Meta Stock Slumps Despite Beating Estimates

Shares of social media giant Meta Platforms (NASDAQ: META) are trading lower in early market today. The company announced its Q3 results after market close on October 25th and reported revenue of $34.15 billion and adjusted earnings of $4.39 per share.

Comparatively, analysts expected it to report sales of $33.56 billion and earnings of $3.63 per share in Q3. Meta’s top line surged by 23% in Q3, which was its fastest growth rate in two years. While META stock initially gained momentum in extended trading, these gains were soon revised due to its cautious outlook for the near term.

What drove Meta revenue and earnings in Q3?

Meta surpassed estimates on several metrics. It reported:

Daily active users or DAUs of 2.09 billion vs. estimates of 2.07 billion
Monthly active users of 3.05 billion, which was in line with estimates
Average revenue per user of $11.23, higher than estimates of $11.05

Meta emphasized its top-line growth accelerated in Q3, allowing it to recover from a tumultuous period in 2022 where it fell for three consecutive quarters. Its focus on cost efficiencies also enabled Meta to grow net income by 164% to $11.58 billion in the September quarter.

Meta is outpacing peers such as Alphabet and Snap, which grew ad sales by 9.5% and 5%, respectively, in Q3.

Meta’s robust performance in the September quarter can be attributed to the improving effectiveness of online ads following iOS privacy changes, which were introduced in late 2021, making it difficult for ad platforms to target potential customers.

Moreover, Meta has emphasized its considerable investment in artificial intelligence, which plays a pivotal role in attracting retailers keen on offering personalized promotions to customers.

On its recent earnings call, CEO Mark Zuckerberg mentioned a 7% increase in Facebook usage and a 6% rise in Instagram this year due to enhanced recommendation algorithms.

The companyU+02019s CFO, Susan Li, indicated that online commerce was the primary driver for the growth in advertisement revenue over the past year. This was followed by the consumer goods and gaming sectors.

However, she also mentioned the companyU+02019s broader revenue guidance for the upcoming quarter, pointing to uncertainties in the Middle East caused by the Israel-Hamas conflict. Li noted some ad softness correlating with the conflictU+02019s onset, adding that itU+02019s challenging to link this to any specific geopolitical event directly.

For the upcoming quarter, Meta anticipates a revenue range of $36.5 billion to $40 billion. The estimated midpoint would mark approximately 19% growth compared to the same period last year.

Meta focuses on cost reductions

MetaU+02019s 2023 expenses are forecasted to be between $87 billion and $89 billion, lower than its earlier projection. For 2024, the expenses are predicted to range from $94 billion to $99 billion. Zuckerberg highlighted that AI would be the primary investment focus in 2024, spanning engineering and computational resources.

MetaU+02019s Reality Labs, specializing in VR and AR tech, reported $3.74 billion in quarterly operational losses. Since the previous year, the division has accumulated nearly $25 billion in losses, even after launching products like the Quest 3 headset. Despite these losses, Zuckerberg praised his teamU+02019s strides in AI and mixed reality, particularly highlighting the Quest 3 and Ray-Ban Meta Smart Glasses launches.

The firm expects the operational losses of Reality Labs to rise due to continued product development and efforts to expand its ecosystem.

As of the end of September, MetaU+02019s workforce stood at 66,185, marking a 24% reduction from the previous year. The decrease is attributed to substantial cost-cutting measures. The company shared that it has largely wrapped up the planned layoffs by September 30, 2023, while evaluating facility consolidations and data center restructuring strategies.

Overall costs and expenses for the company dropped by 7% year-over-year to $20.4 billion. This aligns with ZuckerbergU+02019s proclamation earlier in the year emphasizing the importance of an efficient and streamlined workforce.

MetaU+02019s stock has surged by approximately 150% this year, making it the second-best performer in the S&ampP 500, only trailing AI chip manufacturer Nvidia (NASDAQ: NVDA).

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