Facebook owner Meta Platforms (META) is set to report quarterly results that should provide a clearer snapshot on advertising spending, the core source of revenue for all social media companies. The Meta earnings report is due to arrive late Wednesday.
The lack of clarity on ad spending is a reason why Meta stock and that of other social media companies have spiraled downward over the past year. This includes Snap (SNAP), Etsy (ETSY) and Pinterest (PINS).
Following its quarterly earnings report Friday, Snap saw its stock plunge. It missed estimates due to a weak advertising market. The Snapchat parent also declined to give third-quarter guidance. Plus, Snap said it will “substantially slow our rate of hiring, as well as the rate of operating expense growth.”
Snap stock crashed 39% on Friday, while Meta stock dropped 7.6% that day. Meta stock was up 3% to 164.10 during morning trading on the stock market today.
Costly Shift Into The Metaverse
Meta is undergoing a major and costly shift from social networking to the metaverse. It faces several other challenges of likely concern to analysts when the Meta earnings report is posted.
For example, Meta continues to see revenue declines due to Apple (AAPL) changing its iPhone operating system to reduce ad tracking. It also faces increased competition from TikTok and remains under pressure over allegations of antitrust from Congress.
At the same time, decisions on ad spending remains in flux. Many small and midsize businesses are considering new channels away from Meta for the first time.
“Meta faces a dire economic environment and a daunting geopolitical landscape,” Monness Crespi Hardt analyst Brian White wrote in a note to clients. “Given the sensitivity of advertising campaigns to the vicissitudes of the economy, we expect digital ad spending to come under severe pressure.”
What Analysts Expect From Meta Earnings
Analysts expect Facebook to report adjusted income of $2.54 a share, a drop of 30% from the year-ago quarter. That is the fourth quarter in a row of decelerating earnings. The estimate on revenue is $28.9 billion slightly down from the $29.1 billion a year ago.
In order to shore up profit, Meta has been cutting back on operating expenses.
In late June, various media outlets reported that Meta had warned employees to brace for a tough second half as it copes with pressure on its core ads business. Chief Executive Mark Zuckerberg said he anticipates one of the worst downturns in recent history.
In a separate memo leaked to the press, Chief Product Officer Chris Cox said that Meta would need to execute flawlessly in an environment of slower growth.
Meta stock is down 22% since it reported first-quarter results.
Bank of America analyst Justin Post wrote that potential positives on the second-quarter conference call “could include more stability than expected in the third-quarter outlook, optimism on Reels monetization ramp, progress with ad targeting since Q1, and evidence of slowing Metaverse spend.”
Please follow Brian Deagon on Twitter at @IBD_BDeagon for more on tech stocks, analysis and financial markets.
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