Meta Platforms (META) Down 8% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Meta Platforms (META). Shares have lost about 8% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Meta Platforms due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Meta Platforms Q2 Earnings Beat, Revenues Up Y/Y
Meta Platforms reported second-quarter 2023 adjusted earnings of $3.26 per share, beating the Zacks Consensus Estimate by 12.54%. Including restructuring charges, GAAP earnings were $2.98 per share.
Revenues of $32 billion beat the Zacks Consensus Estimate by 3.51% and increased 11% year over year. At constant currency, the top line improved 12%.
Geographically, the Rest of the World (RoW) revenues grew 16.4% on a year-over-year basis. Asia-Pacific and the United States & Canada revenues increased 10.3% and 8.9% year over year, respectively. Performance in Europe improved with revenues growing 13.5% year over year.
Revenues from Family of Apps (99.1% of total revenues), which includes Facebook, Instagram, Messenger, WhatsApp and other services, increased 11.8% year over year to $31.72 billion.
Top-Line Details
Family Daily Active People or DAP, defined as a registered and logged-in user who visited at least one of the Family products (Facebook, Instagram, Messenger and/or WhatsApp) on a given day, were 3.07 billion, up 6.6% year over year.
Family Monthly Active People or MAP increased 6.3% year over year to 3.88 billion.
Advertising revenues (99.3% of Family of Apps revenues) increased 11.9% year over year to $31.5 billion and accounted for 98.4% of second-quarter revenues.
RoW advertising revenues grew 15.6% on a year-over-year basis. Asia-Pacific and the United States & Canada advertising revenues increased 10.3% and 10.5% year over year, respectively. Moreover, Europe’s advertising revenues increased 14.3% year over year.
Ad impressions delivered across Family of Apps increased 34% year over year and the average price per ad decreased 16% year over year in the reported quarter. Impression growth was primarily driven by Asia-Pacific and the Rest of the World.
Online commerce was the largest contributor to year-over-year growth, followed by entertainment & media and CPG. Online commerce benefited from strong spending by advertisers in China.
Family of Apps’ other revenues increased 3.2% year over year to $225 million.
Reality Labs’ revenues (0.9% of total revenues) plunged 38.9% year over year to $276 million.
Facebook’s User Base Remains Strong
Monthly active users (MAUs) were 3.03 billion, up 3.3% year over year.
MAUs in Asia-Pacific, RoW and the United States & Canada grew 3.4%, 4.5% and 2.3% year over year, respectively. Europe MAUs climbed 0.5% year over year.
Daily Active Users (DAUs) were 2.06 billion, which increased 4.9% year over year and represented 68% of MAUs.
Asia-Pacific DAUs increased 6.6% year over year. DAUs in RoW and the United States & Canada grew 5.4% and 2.5%, respectively. DAUs in Europe increased 1.3% year over year.
Average Revenues per User in RoW grew 12.2% on a year-over-year basis. Asia-Pacific, Europe, and the United States & Canada increased 7.5%, 14.3%, and 6.5%, year over year, respectively.
Operating Details
In the second quarter, total costs and expenses increased 10.5% year over year to $22.61 billion. This included accrued legal expenses of $1.87 billion and restructuring charges of $780 million.
As a percentage of revenues, total costs and expenses were 70.6%, down 40 basis points year over year.
In the reported quarter, Family of Apps expenses were $18.6 billion, accounting for 82% of Meta’s overall expenses. FoA expenses grew 8% year over year. Reality Labs’ expenses were $4 billion, up 23%.
As a percentage of revenues, while marketing & sales expenses decreased 260 basis points (bps), general & administrative expenses increased 260 bps on a year-over-year basis.
Research & development expenses, as a percentage of revenues, were 29.2%, down 90 bps on a year-over-year basis.
Meta’s employee base was 71,469 at the end of the second quarter, down 14% year over year.
Operating income of $9.39 billion increased 12.4% year over year. The operating margin was 29.4%, expanding 40 bps on a year-over-year basis.
Family of Apps’ operating income increased 17.6% year over year to $13.13 billion. Reality Labs reported a loss of $3.74 billion compared with the year-ago quarter’s loss of $2.81 billion.
Balance Sheet & Cash Flow
As of Jun 30, 2023, cash & cash equivalents and marketable securities were $53.45 billion compared with $37.44 billion as of Mar 31, 2023.
Long-term debt was $18.38 billion as of Jun 30 compared with $9.92 billion as of Mar 31, 2023.
Capital expenditures were $6.35 billion in the second quarter compared with $7.09 billion in the previous quarter. Free cash flow was $10.96 billion compared with the $6.91 billion reported in the previous quarter.
Meta repurchased $793 million of its Class A common stock in the reported quarter. As of Jun 30, 2023, the company had $40.91 billion available and authorized for repurchases.
Guidance
Meta expects total revenues between $32 billion and $34.5 billion for the third quarter of 2023. Favorable forex is expected to aid year-over-year top-line growth by roughly 3%.
For 2023, the company anticipates total expenses for the current year to be between $88 billion and $91 billion, including an estimated $4 billion in restructuring charges.
It continues to expect Reality Labs operating losses to increase year-over-year in 2023.
In the ongoing year, Meta still expects capital expenditures to be between $27 billion and $30 billion.
Meta expects infrastructure costs to increase in 2024, due to higher depreciation and operating costs. Payroll expenses are also expected to increase.
Moreover, Reality Labs’ operating losses are expected to increase meaningfully year-over-year due to product development efforts in augmented reality/virtual reality and investments to further scale its ecosystem.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
The consensus estimate has shifted 17.95% due to these changes.
VGM Scores
At this time, Meta Platforms has a great Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Meta Platforms has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Meta Platforms is part of the Zacks Internet - Software industry. Over the past month, F5 Networks (FFIV), a stock from the same industry, has gained 0.2%. The company reported its results for the quarter ended June 2023 more than a month ago.
F5 reported revenues of $702.64 million in the last reported quarter, representing a year-over-year change of +4.2%. EPS of $3.21 for the same period compares with $2.57 a year ago.
F5 is expected to post earnings of $3.22 per share for the current quarter, representing a year-over-year change of +22.9%. Over the last 30 days, the Zacks Consensus Estimate has changed +0.3%.
F5 has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.
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