Meta shares plummet 13% on weak fourth-quarter forecast and earnings miss

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Facebook co-founder and CEO Mark Zuckerberg arrives for testimony before the House Financial Services Committee in the Rayburn House Office Building on Capitol Hill October 23, 2019 in Washington, DC.
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Meta shares plummeted in extended trading on Wednesday after Facebook’s parent issued a weak forecast for the fourth quarter and came up well short of Wall Street’s expectations for earnings.

  • Earnings per share (EPS): $1.64 vs $1.89 expected, according to Refinitiv
  • Revenue: $27.71 billion vs. $27.38 billion expected, according to Refinitiv
  • Daily Active Users (DAUs): 1.98 billion vs 1.98 billion expected, according to StreetAccount
  • Monthly Active Users (MAUs): 2.96 billion vs 2.94 billion expected, according to StreetAccount
  • Average Revenue per User (ARPU): $9.41 vs. $9.83 expected, according to StreetAccount

Meta is contending with a broad slowdown in online ad spending, challenges from Apple’s iOS privacy update and increased competition from TikTok. Add it up, and Meta is expected to post its third straight quarter of declining sales for the year.

The company said revenue for the fourth quarter will be $30 billion to $32.5 billion. Analysts were expecting sales of $32.2 billion.

Meta’s revenue declined 4% year over year to $27.7 billion in the third quarter. Meanwhile, the company’s costs and expenses rose 19% year over year to $22.1 billion. Operating income declined 46% from the previous year to $5.66 billion.

The Facebook parent’s operating margin, or the profits left after accounting for costs to run the business, sank to 20% from 36% a year earlier. Overall net income was down 52% year over year to $4.4 billion in the third quarter.

At its after-hours levels, Meta is trading at its lowest since July 2016, which was four months before the election of Donald Trump as president.

Revenue in the Reality Labs unit, which houses the company’s virtual reality headsets and its futuristic metaverse business, fell by almost half from a year earlier to $285 million. Its loss widened to $3.67 billion from $2.63 in the same quarter last year.

Reality Labs has lost $9.4 billion so far this year.

Meta said that it is “holding some teams flat in terms of headcount, shrinking others and investing headcount growth only in our highest priorities.”

“As a result, we expect headcount at the end of 2023 will be approximately in-line with third quarter 2022 levels,” the company added in a statement.

In the third quarter of 2022, Meta said that it has 197 million daily active users in the U.S. and Canada, up from 196 million during the same quarter in 2020. Meta derives the bulk of its revenue from users in North America.

Meta is the latest company impacted by the weak online advertising market, which is getting hammered by factors including Apple’s 2021 iOS privacy update and fears of an impending recession. Those concerns have caused companies to slash their marketing and ad campaigns.

Last week, Snap shares cratered 30% a day after the company reported weaker-than-expected revenue, which executives attributed to platform changes and a downtrodden economy.

Investors were also disappointed with Alphabet’s third quarter earnings, in which the company’s YouTube business unit reported a 2% year-over-year sales drop to $7.07 billion. Alphabet chief financial officer Ruth Porat said the decline “primarily reflects further pullbacks in advertiser spends.”

Even Microsoft wasn’t immune, with the tech giant reporting slowing growth rates for both its search and news advertising business and LinkedIn unit. Microsoft CFO Amy Hood attributed the slowdown to “reductions in customer advertising spend.”

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