Meta Platforms (FB, Financial), the company formerly known as Facebook, reported earnings for its first quarter of 2022 on Wednesday after the market closed.
They beat earnings per share estimates, but revenue fell slightly below expectations. Daily Active Users (DAUs) increased from 1.93 billion to 1.96 billion people, a 1.55% rise, after a decline in users for the first time ever last quarter.
The stock price was up 17% in after-hours trading following the news before settling in at a more modest 11% gain around market-open. The rise looks like a drop in the bucket compared to they eye-watering 47% decline year-to-date, but it does show a return of investor optimism.
Earnings and user numbers
Highlights from the first-quarter results included the following:
- Revenue: $27.9 billion (slightly below the $28.24 billion expected).
- Adjusted Earnings per Share (EPS) : $2.72 (this beat the $2.56 expected).
- Ad revenue: $27 billion (slightly below $27.48 billion expected).
- Daily Active Users (DAUs): 1.96 billion (vs. the 1.95 billion expected).
- Monthly Active Users (MAUs): 2.94 billion (vs. 2.97 billion expected),
- Average Revenue per User (ARPU): $9.54 (higher than $9.50 expected).
I have been tracking Meta's DAU growth quarter by quarter, starting with Q3 results. As you can see in the below chart, they had a major boost in users in the third quarter of 2020, up 10.9%, and there was also an increase in the third quarter of 2021, up 6%, although the growth rate was lower than pre-pandemic. By the fourth quarter of 2021, DAUs had declined by 0.05% to 1.93 billion. This was part of what caused the stock to plummett, with other factors including the public relations mishaps and abrupt pivot to the metaverse. However, the company is starting to grow DAUs again with an increase of 1.5% this quarter.
Revenue was up 7% in the first quarter of 2022, below analyst expectations of 7.8%. This is the first time as a public company Meta has had revenue growth in the single digits.
This was due largely to the fact that in the fourth quarter, Apple’s (AAPL, Financial) iOS privacy changes (to provide app tracking transparency) negatively impacted ad revenue, as this allows users to determine if they want their apps to track them across the web. One of the key elements of the value proposition of Meta's social media sites to advertisers is this tracking via the “Facebook Pixel." Meta is now pivoting to alternative means of tracking such as on the server site. It is estimated Apple's privacy changes will cost the company as much as $10 billion in 2022.
Meta reported that it expects its total expenses for 2022 to come in between $87 billion and $92 billion, which is less than the $90 billion to $95 billion previously guided for.
Metaverse
Meta's big plan to return to growth is the metaverse. It hopes that by beating other companies to the metaverse, it can avoid being forced to stop invading users' privacy, allowing huge potential for ad targeting.
This is why Facebook changed its name to Meta in October 2021, to signal the company’s new focus on the metaverse. Meta owns the world's most popular virtual reality headset, the Oculus Rift, which is part of their “Reality Labs” segment. However, “Reality Labs” only makes up a slither of the company’s revenue right now at 2.5%. The segment lost $2.96 billion in the recent period compared with a loss of $1.83 billion in the first quarter of 2021.
CEO Mark Zuckberg has even stated in various interviews, “We are losing money on Oculus." Their plan is to sell the headsets cheaper in order to reach more people. Meta is currently spending a ginormous $24 billion on R&D, and a large portion of this is going towards the metaverse research and development.
Valuation
According to the GF value line, Meta stock is significantly undervalued at the current level. We do have to keep in mind that this rating relies on the company being able to to return to its historical growth levels, which would mean the metaverse and other profit sources would need to more than make up for the decrease in ad revenue.
I still believe Meta is a fantastic company because of how pervasive its social media apps are in people's everyday lives. It has a strong number of DAUs as well as a duopoly in the online advertising market along with Alphabet's Google (GOOG, Financial)(GOOGL, Financial), and their platform is very advanced. For me, a bet on the future of Meta is a bet on Zuckerberg and his ability to pivot the company to an entirely different track.
