A month has gone by since the last earnings report for Meta Platforms (FB). Shares have lost about 14.6% 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’ Q4 Earnings Miss Mark, Revenues Up Y/Y
Meta Platforms’ fourth-quarter 2021 earnings of $3.67 per share missed the Zacks Consensus Estimate by 2.91% and decreased 5.4% year over year.
Revenues of $33.67 billion beat the Zacks Consensus Estimate by 1.51% but increased 19.9% year over year. At constant currency (cc), the top line improved 21%.
Top-Line Details
Geographically, Asia-Pacific, the United States & Canada, Europe, and Rest of World (RoW) revenues grew 30.3%, 15.2%, 19.2%, and 28%, on a year-over-year basis, respectively.
Family of Apps revenues (97.4% of total revenues) increased 19.9% year over year to $32.79 billion. Family of Apps includes Facebook, Instagram, Messenger, WhatsApp and other services.
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 2.82 billion, up 8.5% year over year.
Family Monthly Active People or MAP increased 8.8% year over year to 3.59 billion.
Advertising revenues (99.5% of Family of Apps revenues) increased20.1% year over year to $32.64 billion and accounted for 96.9% of fourth-quarter revenues.
Meta stated that Apple’s iOS changes negatively impacted businesses, particularly, small businesses that rely on digital advertising to grow.
Apple’s iOS changes have made ad targeting difficult, which, in turn, has increased the cost of driving outcomes. Moreover, measuring these outcomes has also become difficult. These factors are expected to hurt advertising growth in first-quarter and throughout 2022.
The tech giant’s RoW, Europe, the United States & Canada, and Asia-Pacific advertising revenues grew 28.2%, 19.8%, 14.5% and 31.5%, on a year-over-year basis, respectively.
Ad impressions served rose 13%, and average price per ad increased 6% from the year-ago quarter. Impression growth was primarily driven by Asia Pacific and RoW, while impressions in North America declined 6% year over year.
Globally, impression growth benefited from ad load increases and user growth, but was partially offset by engagement-related headwinds. Meta faced increased competition for people’s time (strong adoption of services like TikTok) and a shift of engagement within its apps to video platforms like Reels, which show fewer ads than Feed or Stories, currently.
Other revenues declined 7.7% year over year to $155 million.
Reality Labs revenues (2.6% of total revenues) increased 22.3% year over year to $877 million. Reality Labs includes augmented- and virtual-reality-related consumer hardware, software and content.
Facebook’s User Base Remains Strong
Monthly active users (MAUs) were 2.912 billion, up 4.1% year over year.
MAUs in Asia-Pacific, RoW, Europe, and the United States & Canada grew 6.6%, 2.6%, 1.9% and 1.6% to 1.28 billion, 945 million, 427 million and 262 million, respectively.
Daily Active Users (DAUs) were 1.929 billion, which increased 4.6% year over year and represented 66% of MAUs.
Asia-Pacific DAUs were up 8.3% year over year to 806 million. DAUs in RoW and Europe grew 3.5% and 0.3% to 619 million and 309 million, respectively. The United States & Canada DAUs were unchanged at 195 million.
Average Revenue per User (ARPU) in RoW, Europe, the United States & Canada, and Asia-Pacific grew 23.8%, 16.7%, 13.1% and 20.7%, on a year-over-year basis, respectively.
Quarter Details
In the fourth quarter, total costs and expenses increased 37.8% year over year to $21.09 billion. As a percentage of revenues, total costs and expenses were 62.6%, up 810 basis points (bps) on a year-over-year basis.
As a percentage of revenues, marketing & sales (M&S), and research & development (R&D) increased 130 bps and 240 bps, on a year-over-year basis, respectively.
General & administrative (G&A) expenses increased 410 bps from the year-ago quarter.
Meta’s employee base was 71,900 at the end of the fourth quarter, up 23% year over year.
Operating income of $12.59 billion decreased 1.5% year over year. Operating margin contracted 810 bps year over year to 37.4%.
Balance Sheet & Cash Flow
As of Dec 31, 2021, cash & cash equivalents and marketable securities were $48 billion compared with $58.08 billion as of Sep 30, 2021.
Capital expenditures were $5.54 billion in the fourth quarter compared with $4.54 billion in the previous quarter. Free cash flow was $12.56 billion compared with $9.55 billion reported in the previous quarter.
Meta repurchased $19.2 billion of its Class A common stock in the reported quarter.
Guidance
Meta expects total revenues between $27 billion and $29 billion for the first quarter of 2022. Revenues are expected to grow in the 3-11% range.
Increased competition for people’s time (strong adoption of services like TikTok) and a shift of engagement within Meta’s apps toward video offerings like Reels, which monetize at lower rates than Feed and Stories, is expected to hurt ad impressions growth.
The guidance reflects continuing headwinds from the changes made by Apple in its iOS update that has made ad-targeting difficult, besides macroeconomic and COVID-related concerns.
Cost inflation and supply chain disruptions are expected to impact advertiser budgets. Moreover, unfavorable forex is expected to hurt year-over-year growth.
Meta anticipates total expenses for the current year to be between $90 billion and $95 billion, driven by investments in technical and product talent, and infrastructure-related costs.
In the ongoing year, Meta expects capital expenditures to be between $29 billion and $34 billion, driven by investments in data centers, servers, network infrastructure, and office facilities.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
The consensus estimate has shifted -10.05% due to these changes.
VGM Scores
At this time, Meta Platforms has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren’t focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Meta Platforms has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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