Facebook parent Meta Platforms’ stock crashes on earnings miss and weak forecast

Facebook’s parent company Meta Platforms Inc. reported earnings today for the first time since its rebranding, only to see its stock lose 22% of its value in extended trading after missing estimates and following with a weak forecast.

The company reported fast-rising costs and also disclosed an operating loss of more than $3 billion in its new Reality Labs business unit. Meta said its business took a hit from Apple Inc.’s privacy changes, which make it more difficult for brands to target and measure Facebook and Instagram ads, as well as macroeconomic issues.

Stalled user growth has only made matters worse for Meta, which added that many of its users are shifting their attention to new features such as Reels, a short video offering that generates less revenue.

For the fourth quarter, Meta reported a net income of $10.29 billion, with earnings of $3.67 per share on revenue of $33.67 billion, up 20% from a year ago. Meta’s total costs and expenses in the quarter came to $21.1 billion, up 38%.

The performance was worse than expected, with Wall Street looking for earnings of $3.84 per share on revenue of $33.41 billion.

Meta Chief Executive Mark Zuckerberg tried to put a brave face on things, saying the company delivered a “solid quarter”.

“I’m encouraged by the progress we made this past year in a number of important growth areas like Reels, commerce, and virtual reality, and we’ll continue investing in these and other key priorities in 2022 as we work towards building the metaverse,” he insisted.

Today was the first time the company has made a financial report since renaming itself as Meta, a decision that reflected Zuckerberg’s ambition to build a computing platform that will host the so-called “metaverse”, where digital and physical worlds will merge with the aid of augmented and virtual reality technologies. With the rebranding, Meta now breaks down its financial results into two business segments. The new Family of Apps includes Facebook, Instragram, Messenger and WhatsApp, while Reality Labs encompasses Meta’s AR and VR consumer hardware, software and content.

The Family of Apps unit pulled in $32.794 billion in revenue and reported an operating income of $15.89 billion. The much smaller Reality Labs meanwhile generated just $877 million in revenue, with an operating loss of $3.3 billion.

The results suggest that Meta’s ambitions of metaverse domination are still a long-term goal. More worrying for investors though, is that Meta may well have to realize those ambitions among its existing user base. That’s because the company reported having just 2.9 billion monthly active users in the fourth quarter – meaning no growth compared to the previous quarter.

That lack of growth might be one reason for Meta’s somewhat downhearted guidance for the first quarter. Officials said the company is expecting Q1 revenue of between $27 billion and $29 billion, below the analysts’ forecast of $30.14 billion.

Meta Chief Financial Officer David Wehner said year-over-year growth in Q1 will be impacted by “headwinds to both impression and price growth.” He also spoke of challenges such as “increased competition for people’s time” and the shift in engagement among Facebook users to features like Reels, which has lower monetization rates than the News Feed and Stories.

Meta will of course also face increased scrutiny as the first quarter will be the first year-over-year comparison since before Apple’s iOS 14.5 update, allowing analysts to see the impact of the new App Tracking Transparency feature that requires developers to obtain permission from users before they can track them across other apps and websites when using an iPhone or iPad.

The feature makes it more difficult for platforms such as Meta, which relies on tracking users to deliver more targeted ads.

Wehner said Meta faces other challenges too. “We’re hearing from advertisers that macroeconomic challenges like cost inflation and supply chain disruptions are impacting advertiser budgets,” he warned.

The after hours slump in Meta’s stock meant the company lost more than $200 billion in value.

Image: Anthony Quintano/Flickr