Meta Q4 preview: Where next for FB stock?

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Josh Warner
By :  ,  Market Analyst

When will Meta release Q4 earnings?

Meta Platforms is scheduled to publish fourth quarter and full year earnings after the markets close on Wednesday February 2.

 

Meta Q4 earnings preview

This is expected to be the sixth consecutive quarter Meta is set to report slower year-on-year growth in both Daily Active Users (DAUs) and Monthly Active Users (MAUs). DAUs are expected to grow just 5.8% in the fourth quarter to 1.95 billion while MAUs are forecast to grow 5.3% to 2.95 billion.

(Billions)

Q4 2020

Q1 2021

Q2 2021

Q3 2021

Q4 2021E

DAUs

1.84

1.88

1.91

1.93

1.95

- YoY Growth

10.8%

8.7%

6.7%

6.0%

5.8%

MAUs

2.8

2.85

2.9

2.91

2.95

- YoY Growth

12.0%

9.6%

7.4%

6.2%

5.3%

 

Importantly, this will be the first quarter to adopt the new reporting structure that Meta has adopted. Going forward, the company will breakdown revenue and earnings into two segments. The first segment covers its ‘Family of Apps’ including Facebook, Instagram, WhatsApp and Messenger and the second segment, ‘Reality Labs’, houses its augmented and virtual reality headsets, led by the Oculus, and the content and software that drives them. That decision has been made following the company’s decision to change its name to Meta to reflect its growing focus on the metaverse, which is emerging as the next big race in the tech space.

Meta is expected to report a 19% rise in revenue in the fourth quarter to $33.4 billion from the $28.1 billion delivered the year before. That would be at the upper end of Meta’s target range of $31.5 billion to $34.0 billion. Meanwhile, EPS is expected to fall 1.1% year-on-year to $3.84 from $3.88 as it comes up against tough comparatives.

Notably, this quarter is expected to see Meta deliver its slowest topline growth and its first year-on-year drop in earnings for 18 months.

One of the reasons brakes are set to be applied to growth in the fourth quarter is the update Apple introduced last year that makes it harder for companies to track user’s online activity and therefore target ads at individuals. Meta said the changes were the single biggest headwind it faced in the third quarter and that it would continue into the fourth. It said it had forecast a sequential slowdown in revenue growth because of the ‘significant uncertainty we face in the fourth quarter in light of continued headwinds from Apple's iOS 14 changes, and macroeconomic and COVID-related factors.’

And it could weigh on results for the foreseeable future. ‘In terms of the overall targeting, I think it's hard to sit here and decide exactly where we're going to end up at the all of this. It is going to be a multiyear effort. We've definitely seen a hit already, and we're definitely focused on tools to help advertisers,’ said chief operating officer Sheryl Sandberg in the last earnings call.

The changes Apple has made highlights the power of first-party data. The big players in this field are the likes of Apple and Alphabet that hoard a treasure trove of data they collect themselves directly from users on devices. But it puts social media companies at a disadvantage. Although they collect swathes of data, they rely more upon second-party data that is now harder to utilise under Apple’s latest changes.

Another headwind is a slowdown in demand from advertisers as they battle against supply chain problems, which Meta warned would also continue into the fourth quarter. Ad revenue from Europe and North America both dropped sequentially in the third quarter and was only countered by growth in Asia and the rest of the world, and that trend is also likely to persist in the fourth.

Meanwhile, its new Reality Labs unit will have a tough start considering it will be coming up against strong figures from the year before after it launched the Oculus Quest 2 headset and Meta has said non-advertising revenue, which only accounts for a fraction of total income, will also fall in the fourth quarter.

One of the biggest challenges facing Meta is improving engagement levels among younger users. The company has admitted it is facing ‘tough competition’ from more youthful applications, especially TikTok and Snapchat. But there are also concerns that its waning appeal among younger users, which are among the most likely to adopt new tech like AR and VR, could impact its longer-term efforts to control the metaverse.

If Meta meets expectations in the final three months of 2021, then it is on course to report a 37% jump in annual revenue to $117.6 billion and a 43% rise in EPS to $13.95 in 2021.

We should also get the first glimpse as to what Meta expects in 2022. The company issues forward guidance on a quarterly basis and this can be a big mover of the share price depending on how it fares versus market expectations. Wall Street currently expects Meta to see the slowdown continue in the first quarter of 2022 with forecasts revenue will grow by just 16% to $30.3 billion.

Wall Street currently believes that Meta will be able to grow annual revenue by 19% in 2022 but expects EPS to increase by a tepid 1.5%. It is anticipated that the entirety of Big Tech will see a slowdown this year following the record sales and earnings seen in 2021, but Meta is a contender to deliver the slowest growth of them all in 2022.

You can read more about the challenges Big Tech will face in 2022 here.

Earnings growth is set to severely lag behind the topline this year, partly because Meta is raising its spending budgets as it ramps-up investment in data centres, servers and network infrastructure. This will see capex rise to $29 billion to $34 billion in 2022 from the $19 billion budget set for 2021. Total costs are also set to rise to a range of $91 billion to $97 billion from around $70 billion in 2021 as it continues to expand. Neither of these budgets have been finalised, so investors will want to see a firmer outlook when it comes to expenditure for the next 12 months.

 

Where next for FB stock?

Meta shares have lost over 10% in value since the start of 2022 and hit their lowest level in 10 months last week.

Sellers managed to push the stock below $294 on several occasions last week, but not without attracting an influx of buyers that ensured the stock closed above this level. If it closes below this level, then we could see shares decline toward the $278 level of support that briefly emerged last March. Any move lower would be more significant as it opens the door to $253.

The current downtrend that has accelerated since the start of the year could continue considering moving averages are painting a bearish picture for the stock. The 100-day sma crossed below the 200-day sma last week, after the 50-day broke below it in December, and that is reinforced by the bearish RSI.

On the flip side, if it can hold the $294 level and start to head higher then the first upside target is $316 in order to close the small gap that appeared on January 21 before it can target the 50-day sma at $327. If it can then recover both the 100-day and 200-day moving averages, it can then eye the $353 level of resistance that surfaced in November and December.

Meta shares have a tough start to 2022

 

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