The Meta Platforms logo is seen in Davos, Switzerland on May 22, 2022.
It’s an earnings palooza week for Big Tech, with the four most valuable US companies plus Meta all reporting quarterly results.
Alphabet and Microsoft kick off the action on Tuesday, with Apple and Amazon wrapping things up on Thursday. Interspersed among them is Meta on Wednesday.
Investors in all five names are hurting this year as rising inflation, rising interest rates and recession fears have hammered the tech sector. Within the mega-cap group, Meta suffered the most, losing half its value as Facebook’s struggling ad business has yet to show signs of rebounding.
When Meta reports second-quarter numbers, Wall Street will be looking closely for signs that growth is ready to return. It also needs to see improved trends when it comes to users who have fled the company’s apps in recent quarters in favor of rivals like TikTok.
“They’re starting to get tired of it,” said Debra Aho Williamson, an analyst at research firm Insider Intelligence. “Users are definitely gravitating to other platforms or they’re engaging less with Facebook, and when you start to see that happen in larger and larger amounts, that’s when advertisers really start to take notice.”
Facebook is expected to show its first year-over-year revenue drop ever for the second quarter, and analysts are projecting a mild acceleration in the third quarter with mid-single-digit growth. The mood in the mobile advertising industry is tough in the report.
Last week, Snap reported disappointing second-quarter results, missing revenue and earnings and announcing plans to slow hiring. Snap blamed a tough economy and Apple’s iOS privacy change as major obstacles, along with competition from TikTok and others.
Barton Crockett, an analyst at Rosenblatt Securities, told CNBC that in terms of revenue, Snap and Meta are “both in the same place.”
“They’re not growing, but they’re not really falling off a cliff right now,” said Crockett, who has a hold rating on both stocks.
From a user point of view, Snap holds up better. The company said last week that daily active users grew 18% year over year to 347 million. Facebook’s DAU increased 4% in the first quarter to 1.96 billion, and analysts expect that number to hold, according to FactSet, which would represent about a 3% increase from a year ago.
“Snap is in a stronger position in terms of user growth,” Crockett said.
Like Snap, Facebook was hit hard by Apple’s iOS update, which makes it harder for advertisers to target users. Much of Facebook’s value to marketers is targeting capabilities and the ability to track users across multiple third-party sites.
With the stock’s 50% drop this year, Meta’s market cap has sunk below $500 billion, making the company worth less than Tesla, Berkshire Hathaway and UnitedHealth, in addition to its Big Tech peers.
Amazon fell 27% in 2022, while Alphabet fell 25%, Microsoft fell 23% and Apple slipped 13%.
The last time Meta reported results, revenue fell short of estimates. CEO Mark Zuckerberg said some of the challenges were due to the iOS change as well as “broader macro trends, like the softness in e-commerce after the boost we saw during the pandemic.”
TikTok’s growth poses a growing threat to Facebook and Snap as the popular short-form video app falters in the lucrative teen and young adult market.
Meanwhile, Meta continues to spend billions of dollars creating the metaverse, a digital world that people can access through virtual reality and augmented reality glasses.
Meta is currently the leader in the nascent metaverse space, according to CCS Insight analyst Leo Gebbie. Based on a recent VR and AR survey that Gebbie’s company conducted, Meta is the company most people associate with the idea of the metaverse, underscoring the significance of its investments and marketing efforts.
But the metaverse is still years away from becoming mainstream and potentially generating profits. Gebbie said he will watch whether Zuckerberg spends a lot of time on the earnings call discussing the futuristic metaverse or whether he focuses on addressing Meta’s real-world challenges.
“I think we’re definitely going to see more focus on telling the story that Meta is a sensible company,” Gebbie said.
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