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Meta Stock Jumps on Earnings Report. The Expectations Were Low.

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For the March quarter, Meta projected revenue of between $27 billion and $29 billion.

Noah Berger/AFP via Getty Images

Shares of


Meta

Platforms jumped late Wednesday after the social network reported first-quarter earnings that beat Wall Street expectations. Revenue, though, came in lower than expected.

This is breaking news. Read a preview of Meta Platforms’ earnings below and check back for more analysis soon.


Facebook
’s
parent Meta Platforms will release its first-quarter financial results on Wednesday afternoon. Investors are nervous about a reprise of the badly received fourth-quarter report.

Those results were a debacle. Among other things, Meta (ticker: FB) issued guidance for the March quarter that fell well short of Wall Street’s forecasts, as management disclosed that revenue growth has been slowed significantly by new privacy rules at


Apple

that make it harder to both target advertising and measure the effectiveness of ads. 

Meta said that the Apple changes would reduce 2022 revenue by about $10 billion.

The company also called out the challenges of competing with TikTok in the market for short videos. Meta has launched a rival service called Reels, which appears in both Facebook and Instagram, but the company has said its ability to make money from Reels lags behind other elements of its platforms, like the news feed and “stories.”

For the March quarter, Meta projected revenue of between $27 billion and $29 billion, below the former Wall Street consensus forecast of $30.1 billion. The forecast implies year-over-year growth in the 3% to 11% range. The current Street consensus call is for revenue of $28.3 billion, up 8%, with profits of $2.56 a share.

No doubt there will be scrutiny of the June quarter guidance. The Wall Street consensus call is for revenue of $30.7 billion, up 6% from a year ago, with profits of $2.81 a share.

There are many issues for Meta to navigate. Investors will be looking for an update on the company’s progress in routing around Apple’s “App Tracking Transparency” policy, which makes it harder for Meta to use information on consumer activity on iPhones to target ads. They’ll also be listening for any update on progress in the monetization of Reels.

The Street is also worried about the overall state of the digital advertising industry. Signs of softening have emerged in Europe as a result of nervousness tied to the Russian invasion of Ukraine, supply chains remain snarled, inflation is high, and worry is growing about the potential for an economic slowdown later this year. And while it is early to expect much solid news, investors will want a status report on the company’s gigantic investment in the metaverse.

Evercore ISI analyst Mark Mahaney said in a research note previewing the quarter that he thinks the Street consensus revenue forecast for the March quarter looks “risky.” He cited both cautious mid-quarter commentary from the company and soft first-quarter results last week from


Snap

(SNAP), Snapchat’s parent company. 

Mahaney said Snap’s results showed that the impact of the Ukraine war on the ad market “is very real,” affecting both brand and direct-response advertising. He also noted that foreign-exchange headwinds have strengthened over the past two months.

But the biggest issue is likely to remain how the company responds to the challenges posed by Apple’s policy change, he said. “A key focus on Meta remains the company’s ability to develop, test and deploy a post privacy ad attribution model, and our checks suggest that this will more likely be a 2023 development,” Mahaney wrote.

Still he maintained his Outperform rating on the stock with a price target of $350. Meta shares closed Tuesday at $180.95.

RBC Capital analyst Brad Erickson wrote that half of the advertisers he spoke with in a recent round of channel checks were still reducing spending on Facebook. Some investors believe that the low end of the range of forecasts management gives for second-quarter revenue could point to a year-over-year decline, he said.

“Numbers aside, we think Meta will be aiming to establish a tone of recovery …while also trying to give investors a view towards improving Reels monetization and a stable outlook around its positioning relative to user privacy and the Metaverse,” he wrote. Erickson also expects commentary on challenges such as weakness in Europe and a slowdown in the launch of ad campaigns following Russia’s invasion of Ukraine, saying both factors could “weigh incrementally” on the company’s advertising business.

Erickson has an Outperform rating and $240 target price on Meta shares.

The stock has fallen 44% since Meta reported its fourth-quarter results.

Write to Eric J. Savitz at eric.savitz@barrons.com

Meta Stock Surges After Q1 Earnings Beat, Facebook Active User Rebound

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