Meta Reports Another Disappointing Quarter, Issues Weak Guidance For The Fourth Quarter

Shares of Facebook’s parents Meta fell as much as 19 percent in Wednesday’s extended trading after the company reported an earnings miss and issued weak guidance for the holiday quarter. 

Meta reported earnings of $1.64 per share in the third quarter, below the expectations of analysts, according to Refinitiv. Third-quarter revenue was $27.71 billion, also falling short of the expectation of $27.38 that analysts had, according to Refinitiv. The social media and technology company reported Daily Active Users (DAUs) of 1.98 billion, exactly what analysts had estimated, according to StreetAccount. Monthly Active Users (MAUs) of 2.96 billion surpassed analysts’ expectations of 2.94 billion, according to StreetAccount. Average Revenue per User (ARPU) for the third quarter was $9.41 compared to analysts’ expectations of $9.83, according to Street Account.

Meta’s business is, like other companies, being affected by a decline in online ad spending and the challenges associated with Apple’s iOS privacy update. The company is also facing increased competition from TikTok. Since this year, Meta has been reporting consecutive quarters of revenue declines and is expected to end the year on the same note.

Meta expects fourth-quarter revenue to come between $30 billion and $32.5 billion. Analysts expect revenue of $32.2 billion in the fourth quarter.

While the third quarter saw another revenue drop, the company’s costs and expenses went up 19 percent year over year to $22.1 billion. Operating income fell 46 percent from the prior year to $5.66 billion.

The company’s operating margin, the same as the profits left after accounting costs needed to run the business, fell to 20 percent from the 36 percent reported in the prior year. Overall net income was down to $4.4 billion in the third quarter.

With after-hours levels of about $108, the company was trading at its lowest since March 2016.

The company’s Reality Labs segment which houses its virtual reality headsets and its futuristic metaverse business saw revenue fall by almost half from a year ago to $285 million. Its loss widened to $3.67 billion from $2.63 billion reported in the year-ago quarter. It is pertinent to know that Reality Labs has lost $9.4 billion so far this year and this should continue for quite some time with an end far from sight. “We do anticipate that Reality Labs operating losses in 2023 will grow significantly year-over-year. Beyond 2023, we expect to pace Reality Labs investments such that we can achieve our goal of growing overall company operating income in the long run,” Meta said.

The company said that it is “holding some teams flat in terms of headcount, shrinking others, and investing headcount growth only in our highest priorities. As a result, we expect headcount at the end of 2023 will be approximately in line with third quarter 2022 levels.”

The company said that it had 197 million daily active users in the US and Canada during the third quarter, up from the 196 million it reported in the third quarter of 2020. The company generates most of its revenue from users in North America. 

Meta’s latest report, alongside others that have been reported recently, shows that these companies are taking blows to their online advertising businesses. Factors such as Apple’s 2021 iOS privacy update, reduced spending on online ads, the fear of an imminent recession, etc., continue to affect businesses like Meta.