Nasdaq 100 outlook: META earnings to decline for 6th straight quarter?

META and Nasdaq 100 takeaways

• Meta's Q1 earnings expected to decline for the sixth consecutive quarter due to weak advertising revenue and rising costs, despite growth in Daily Active Users.
• Analysts predict a better second half of 2023 as advertising demand rebounds, costs decrease, and profit margins improve, with focus on future outlook.
• The Nasdaq 100 remains within a bullish flag pattern heading into a major week for earnings, with key support at 12,800.

When are META earnings?

META reports its earnings Wednesday April 26, 2023, after the closing bell.

What are analysts expecting for META earnings?

META is expected to post quarterly earnings of $1.96 per share in its upcoming report, which represents a year-over-year change of -27.9%.

Revenues are expected to be $27.49 billion, down -1.5% from the year-ago quarter.

META earnings analysis

For the past five quarters, Meta's net income has been in decline, and analysts predict a sixth consecutive drop in Q1 due to ongoing challenges in advertising revenue and increasing expenses affecting earnings.

In the previous quarter, Daily Active Users surpassed the 2-billion mark for the first time, and they are expected to have grown further during the most recent quarter. However, weakening user engagement is negatively impacting ad pricing at a time when companies are tightening their budgets, resulting in a projected 1% decrease in revenue compared to last year.

Expenses are anticipated to rise by 9.6% compared to the previous year. Cost increases are gradually slowing down as Meta's cost-control efforts begin to show results. Since November of last year, Meta has revealed plans to cut 21,000 jobs, with an estimated reduction of 8,000 positions from the fourth quarter, leaving the headcount at around 78,300 by the end of March.

Meta's ongoing investment in the metaverse will also contribute to shrinking profits, as the Reality Labs division is projected to post a staggering $3.8 billion loss in Q1, with no indication of improvement in the near future. Wall Street estimates that Meta's metaverse ventures will incur a loss of nearly $19 billion in 2023. Reducing investments in this area would be the simplest way to alleviate financial stress without affecting the core social media operations but could risk losing the competitive edge in a still-emerging (and unverified) market.

For the time being, experts anticipate a more promising second half of 2023, based on the expectation of a rebound in advertising demand, decreasing costs, and improving profit margins. Consequently, the primary focus will be on future projections.

Nasdaq 100 technical analysis

The Nasdaq 100 is edging lower again ahead of major earnings from META and other “Big Tech” behemoths. Looking at the chart below though, the US index remains within a bullish flag pattern, with prices gradually pulling back from resistance at 13,200.

Source: TradingView, StoneX. This product may not be available in all regions.

We’ll know a lot more by the end of this week, but as long as the index can hold above 12,800, the potential for a bullish breakout keeps the medium-term outlook for the tech-heavy index looking up.

-- Written by Matt Weller, Global Head of Research

Follow Matt on Twitter @MWellerFX