The results of Meta Platforms (aka Facebook) did not meet analysts' expectations. In previous years, the company recorded a steady increase in revenues, and many investors expected that this trend will continue in the second quarter. That's why Wall Street was sorely surprised when Meta showed a year-on-year decline in revenues for the first time in history. Given the deteriorating condition of the US economy, is this the first nail in the coffin, or is it just a one-off drop in revenues?
Thunder from the dark sky
Mark Zuckerberg mentioned in a recent conference quoted by Reuters that he expected a significant slowdown in the performance of Meta Platforms. Therefore, it might seem that all potential negative news was "already priced in", so investors should act in a calm manner following the expected weak quarterly results. However after the publication the speculators' calmness and confidence was put into question as stock plunged over 5.0%. As is usually the case investors "voted with their feet" and decided to leave the board of the USS Zuckerberg. Was it a premature evacuation, or did the investors feel that the company has serious problems?
The forecasts of a significant slowdown in the second half of the year and the decline in EPS by 36% y / y turned out to be particularly painful for investors. Moreover, the company reported a decline in revenues by 0.9% y / y. Although it is still far from the inglorious results of Snap, this incident should not be considered only in quantitative matters. The first-ever y / y drop in revenue could set a dangerous precedent - a well-known saying goes that "if you want to overthrow a deity, show the crowd that it can bleed too." And whether it is just a scratch or a cut through, it is of secondary importance.
The company is trying to undergo a profound and costly transformation from the leader of social platforms to a company focused on VR / AR technology within the Metaverse trend. Monetization of VR and AR technologies is a challenge for the company as part of the Metaverse trend that requires a huge financial investment in which Meta is becoming more and more involved. The company intends to introduce significant VR modifications to the Horizon Worlds platform, and in August it will increase the price of AR 'Quest 2' headsets. Meta announced a significant premiere of the new AR set "Project Cambria" later this year.
Advertising drives trade ... on Wall Street
The company's results confirmed that the digital advertising sector is experiencing a significant slowdown. Rising interest rates and inflation are forcing companies to cut back on spending, which is why the Meta Platforms business model suffers. The company announced that the average price per ad decreased by 14% over the year. But that's not the only problem.
Privacy first and foremost
The biggest challenge for Meta Platforms is still bypassing privacy blockers and updating the ad revenue model. Blockers introduced by Apple on iOS give users the opportunity to opt out of personalized advertising, which affects the profitability of Meta Platforms and other companies whose model is largely based on advertising (including Snap which took a massive hit for this reason recently). Analysts will pay special attention to revenues from this source, which may be a special risk factor in the face of the expected economic slowdown.
An expected surprise
Nevertheless, it seems that the articles, written in an apocalyptic tone, announcing the imminent end of Meta Platforms are greatly exaggerated. The company focuses on diversifying sources of income and is aware of potential problems that may affect the advertising market in the coming quarters. We will probably find out soon whether Meta will manage to cope with the current problems.
META (META.US) stock trades around 55.0% below its all-time high from September 2021. Buyers manage to defend support around $154.00 which coincides with the lower limit of the triangle formation. Nevertheless only break above resistance at $189.70, which is marked with 78.6% Fibonacci retracement of the upward move launched in March 2020, may lead to a shift in sentiment. Source: xStation5