Meta Stock Tumbles Ahead of Q4 Earnings

Meta, the social media giant, is expected to report its earnings for the fourth quarter on Wednesday, January 26th, as the company tries to recover from a decline that caused its stock to drop by 64% last year.

Meta's report comes after rival Snap announced poor fourth-quarter results on Tuesday, which is causing investors to be nervous. With economic uncertainty causing businesses to reduce digital ad spending and pause campaigns, Meta's sales are expected to drop for a third consecutive quarter, making it a challenging time for the company.

Earnings and Revenue Expectations

Analysts are expecting Meta to report earnings of $2.22 per share and revenue of $31.53 billion. They are also expecting daily active users (DAUs) to reach 1.99 billion and monthly active users (MAUs) to reach 2.98 billion. The average revenue per user (ARPU) is expected to be $10.63, which is down from the previous quarter. Despite the decline, analysts expect the company to report a revenue decline of more than 6% for the fourth quarter, but they are projecting that the decline will only last for one more quarter before growth begins to pick up later this year.

Economic Uncertainty and Ad Spending

The online ad market is facing challenges as the stock market started to rebound in January but the economic forecast for 2023 still shows a gloomy outlook. A recent survey of 50 ad buyers conducted by Cowen found that companies are only planning to increase their ad spending in 2023 by 3.3%, which is the softest ad growth outlook seen in five years. The slowdown in online ad spending, increased competition from TikTok, and weakened targeted advertising due to Apple's 2021 iOS privacy update are contributing to the challenges faced by Meta and other online ad platforms.

Job Cuts and Cost-Saving Measures

In November 2022, Meta announced that it would lay off over 11,000 employees, or 13% of the workforce, as part of its plans to reduce costs. CEO Mark Zuckerberg said in a letter to employees that the company would also cut discretionary spending and extend its hiring freeze through Q1 2023.

Metaverse Ambitions and Reality Labs

Last year was marked by CEO Mark Zuckerberg's costly effort to sell Wall Street on his plan to pivot the company towards the metaverse, which would include virtual reality and augmented reality technologies. The big bet has frustrated investors who worry that the company is putting too much focus on a futuristic endeavor while its core ad business struggles to revive growth.

Meta's Reality Labs unit, which is home to the metaverse ambitions, lost nearly $9.4 billion in the first three quarters of 2022. Analysts expect Reality Labs to show an operating loss of $4.36 billion for the fourth quarter on revenue of $715.1 million. Meta stated last quarter that Reality Labs operating losses in 2023 will grow significantly year-over-year.

Meta is facing a challenging time as it tries to recover from a decline that caused its stock to drop by 64% last year. The company is expected to report a third consecutive quarterly sales decline when it releases its earnings on Wednesday, January 26th. Economic uncertainty is leading businesses to reduce digital ad spending, which is contributing to the challenges faced by Meta and other online ad platforms.

While CEO Mark Zuckerberg's metaverse ambitions are causing frustration among investors, the company is taking cost-saving measures to become a leaner and more efficient company.