Meta Platforms Stock Slides to Multi-Year Lows after Dismal Q3 Earnings

Meta Platforms (NYSE: META) stock is trading sharply lower in US premarket price action today after markets gave a thumbs down to its Q3 2022 earnings and fourth-quarter guidance.

Meta Platforms was anyways down over 61% for the year and looks set to slide to the lowest level since 2016 in today’s price action. The company has lost over half a trillion in market cap this year. Both macro headwinds, as well as company-specific factors, have contributed to the fall.

Meta Platforms reported revenues of $27.71 billion in the third quarter of 2022. The revenues fell 4% YoY but were ahead of the $27.38 billion that analysts were expecting. In constant currency terms, the company’s revenues rose 2%. Nonetheless, it is the second consecutive quarter where Meta Platforms’ revenues have fallen on a YoY basis.

Meta Platforms missed earnings estimates

Meta Platforms posted an operating income of $5.66 billion, which was 46% below the corresponding quarter last year. Its net income also halved to $4.39 billion and the adjusted EPS came in at $1.64 which was below the $1.89 that analysts were expecting.

Looking at the operating metrics, Meta Platforms had DAUs (daily active users) of 1.98 billion in the quarter which is in line with estimates. However, the MAUs (monthly active users) were 2.96 billion, slightly ahead of the 2.94 billion that analysts were expecting. The company’s ARPU (average revenue per user) was $9.41 while analysts were expecting the metric at $9.83.

There are concerns over Meta Platforms apps reaching saturation. In his comments, the company’s CEO Mark Zuckerburg said, “Across the family, some apps may be saturated in some countries or some demographics, but overall, our apps continue to grow from a large base.”

Zuckerburg talked about the challenges

Zuckerburg listed macro headwinds, higher competition, lower ad spending, and higher expenses towards the metaverse as the key challenges for Meta Platforms. He however added, “While we face near-term challenges on revenue, the fundamentals are there for a return to stronger revenue growth. We’re approaching 2023 with a focus on prioritization and efficiency that will help us navigate the current environment and emerge an even stronger company.”

Metaverse business continues to post massive losses

In the third quarter, Reality Labs, revenues nearly halved but the losses swelled to $3.67 billion as compared to $2.63 billion in the corresponding quarter last year. The business lost almost $10 billion in the first nine months of the year. Reality Labs houses the company’s metaverse venture.

Earlier this week, Altimeter Capital Chair and CEO Brad Gerstner wrote an open letter to Meta Platforms board and its CEO Mark Zuckerburg advising them to limit the investment toward building the metaverse to below $5 billion annually.

However, Meta Platforms is instead doubling down the metaverse and said that the operating losses next year would be “significantly higher” on a YoY basis. Among others, the business would witness higher employee costs next year.

Meta Platforms looks to go slow on hiring

Meta Platforms slowed down hiring in the third quarter. Notably, Gerstner also advised the company to lower its headcount by 20%. Commenting on the headcount, Zuckerburg said in the earnings call, “In 2023, we’re going to focus our investments on a small number of high priority growth areas. So that means that some teams will grow meaningfully, but most other teams will stay flat or shrink over the next year. In aggregate, we expect to end 2023 as either roughly the same size or even a slightly smaller organization than we are today.”

In its earnings release, Alphabet also said that it would further slow down hiring in 2023 amid a slowing economy.

Zuckerburg faces tough questions on the metaverse

During the earnings call, Zuckerburg faced several tough questions on the massive investments that the company is making to build the Reality Labs business. Jefferies analyst Brent Hill asked “I think kind of summing up how investors are feeling right now is that there are just too many experimental bets versus proven bets on the core. And I’m curious if you can just add more color why you don’t feel these are experimental.”

Responding to the question, Zuckerburg said, “I just think that there’s a difference between something being experimental and not knowing how good it’s going to end up being.” He added, “But I think a lot of the things that we’re working on across the family of apps, we’re quite confident that they’re going to work and be good.”

Reels is taking on TikTok

TikTok’s popularity has been a major challenge for Meta Platforms. In the earnings calls, Meta Platforms said that “Reels” has helped it increase engagement in the platform. It added that 140 billion Reels are played daily across Facebook and Instagram, which is 50% higher than what it was six months ago.

Zuckerburg added, “the trends look good here, and we believe that we’re gaining time spent share on competitors like TikTok.” However, the monetization on Reels is lower than on Feeds and Stories. He however added that the combined run rate on Reels is now $3 billion.

Meta Platforms spooked with guidance

Meta Platforms forecasted revenues between $30-$32.5 billion in the fourth quarter, which was lower than what analysts were expecting. The company said, “Our guidance assumes foreign currency will be an approximately 7% headwind to year-over-year total revenue growth in the fourth quarter based on current exchange rates.”

This would mean a third straight quarter of revenue decline for Meta Platforms. The company however expects to return to growth next year. Nonetheless, Wall Street wasn’t too impressed with Meta Platforms’ earnings as analysts question the costly metaverse investments at a time when the core ad business faces multiple headwinds.