Meta continues to spend heavily on its multiyear project to build out “the metaverse.”
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Last week’s ugly June quarter earnings report from Snap has investors on edge about Meta Platforms results for the same period, which are due after the close on Wednesday.
Like Snap (ticker: SNAP), Meta (META) is feeling the effects of multiple issues.
Advertising budgets are contracting as the global economy slows. Apple ’s push to protect the privacy of iPhone users continues to make it tougher for Meta and others to target and attribute ad campaigns. And the huge growth in the short-video platform TikTok has created tough competition for both ad dollars and consumer time and attention.
Meanwhile, Meta continues to spend heavily on its multiyear project to build out “the metaverse,” a virtual reality environment for both work and play.
For the quarter, Meta has projected revenue of between $28 billion and $30 billion. Street consensus splits the difference at about $29 billion, with profits of $2.56 a share.
Meta has two primary reporting segments—“family of apps,” which includes Facebook, Instagram, Messenger, and WhatsApp—and “Reality Labs,” which includes Quest headsets and the metaverse.
Almost all of the revenue comes from the app business. Estimates call for the company to post $12.3 billion in operating income from the apps business in the quarter, with a $3.7 billion loss from Reality Labs.
The Street suspects the company will have a rough June quarter, and it wouldn’t be a surprise if previous guidance is now too high. For one thing, the company had projected a 3 percentage point hit from currency—but given the continuing appreciation of the dollar, that estimate was likely too low.
Meta has recently slowed hiring, and there are reports that the company is taking a tough line on staff and suggesting that underperformers move along. CEO Mark Zuckernerg reportedly recently told employees that the company faces one of the “worst downturns that we’ve seen in recent history.”
Evercore ISI analyst Mark Mahaney warned in a research note previewing the quarter that estimates for both the second and third quarters have “downside risk,” given the soft recent results from both Snap and Twitter (TWTR).
He adds that Meta’s management is likely to take a “highly cautious” tone on the outlook for the rest of the year. Mahaney expects ad revenue in the quarter of $28.1 billion, which would be down 1.8% from a year ago. Mahaney expects 2.95 billion monthly active users, up 2%, with 1.96 billion daily active users, up 3%.
Street consensus for the September quarter calls for revenue of $30.7 billion in revenue, but that looks high to some analysts.
BofA Global Research analyst Justin Post thinks the company will offer a range of $27.5 billion to $29.5 billion, down sequentially from his June quarter estimate of $29.8 billion. Post thinks the company will ratchet down its spending plans for the rest of the year for both operating expenses and capital expenditures for the Metaverse build out.
Meta shares are down about 53% for the year to date.
Write to Eric J. Savitz at [email protected]
