Meta - Disappointing Second Quarter Results Met With "I Told You So" On Wall Street


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Meta Platforms Inc (NASDAQ:META)’s second quarter revenue fell 1% to $28.8bn, at the bottom end of guidance. Excluding the impact of exchange rates, advertising revenue, which makes up the lion’s share, rose 3%. An average of 3.65bn people used the group’s platforms including Facebook, Instagram and WhatsApp in June, up 4% year-over-year. Facebook monthly active users were 2.93bn, reflecting a 1% increase.

Operating income was down 32% to $8.4bn, reflecting slower revenue growth and a 22% increase in costs driven by rising research and development spend.

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Q2 2022 hedge fund letters, conferences and more

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Third quarter revenue is expected to be between $26bn and $28.5bn, reflecting weaker advertising demand and a 6% negative impact from exchange rates.

Family of Apps (FoA) which includes Facebook Instagram, Messenger and Whatsapp saw revenue fall from $28.8bn to $28.4bn. Operating profits fell 24.6% to $11.2bn.

Reality Labs (RL) under which augmented and virtual reality hardware and software sit, saw revenue rise 48.2% to $452m. Operating losses for this division widened from -$2.4bn to -$2.8bn.

Ad impressions rose 15% but price per ad fell by 14%. Average revenue per user across the family of apps rose slightly from the first quarter to $7.91, but was down 5.4% year-over-year.

Full year capital expenditure guidance has been pared down to $85-88bn from $87-92bn to account for a more challenging environment.

Free cash flow in the quarter nearly halved to $4.5bn, reflecting lower profitability and higher investment. Net cash stood at $40.5bn.

Meta shares were down 1.6% in after-hours trading.

Meta Platforms’ Earnings

Laura Hoy, Equity Analyst at Hargreaves Lansdown:

“The blows just keep coming for Facebook parent Meta. Wednesday delivered a one-two punch to the social media giant—news that the FTC is stepping in to block its latest virtual reality acquisition and unimpressive results confirming fears that advertising spend is drying up.

There was little to cheer in second quarter numbers, with declines and disappointments at nearly every turn, including a lacklustre third quarter outlook. The number of people using Meta’s family of apps each month continued to climb, albeit slowly, and the group’s still free and clear of any debt. But outside of that the numbers were bleak.

The good news is most of this disappointment was already priced in after fellow social media firms Snap and Twitter posted similarly alarming numbers. But that doesn’t do much for investor confidence moving forward.

Add to that the ongoing drama with regulators, and you have an inevitable quicksand of negative sentiment. Many believe big names like Google and Facebook were able to monopolise their territory through unfettered acquisitions of smaller rivals along the way. Whether or not that was the case, the FTC’s out to make sure it doesn’t happen on its watch as big tech looks to snap up virtual real estate in the metaverse. The commission’s efforts to block Meta’s proposed acquisition of virtual reality firm Within is not only a nuisance for Zuckerberg’s vision for a digital future, but a shot across the bow for the entire industry.

This adds to a growing list of reasons Meta’s metaverse is off to a sputtering start. Chief among them being a severe spending cut to cope with waning advertising spend. But even if Facebook was able to splash out, it may well lose the power to sweep up competitors encroaching on its territory. That means Zuckerberg will be forced to navigate the brave new world alone—a risky and expensive endeavour.”


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