Meta Q1 preview: Where next for FB stock?

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Josh Warner
By :  ,  Market Analyst

When will Meta report Q1 2022 earnings?

Meta is scheduled to release first quarter earnings after US markets close on Wednesday April 27.

 

Meta Q1 2022 earnings preview

This earnings season is set to be a huge challenge for Big Tech as a whole, but the biggest test is reserved for Facebook-owner Meta.

We have seen Meta shares collapse over 43% since its last set of earnings were released in early February, when it reported its first quarterly decline in Daily Active Users (DAUs) and its results and outlook both disappointed the markets. That has seen its valuation plunge from over $880 billion at the start of February to less than $535 billion today.

DAUs dipped to 1.929 billion in the final three months of 2022 from 1.93 billion in the previous quarter, marking the first sequential decline on record. Wall Street believes Meta will see DAUs rebound to an average of 1.94 billion in the first quarter. That would be up around 3.4% from the year before, but that would also mark the slowest year-on-year growth on record. We could see another sharp decline for the stock if it fails to meet expectations and we see another decline in user numbers, while a surprise could help reinstall confidence that the previous quarter was a one-off blip.

Meta has said revenue will be between $27 billion to $29 billion in the first quarter of 2022 and Wall Street is looking for a figure of $28.2 billion. That would be up from the $26.2 billion reported the year before. Meanwhile, earnings are expected to suffer a year-on-year decline for the second consecutive quarter with analysts looking for adjusted EPS of $3.13, down from $3.30 the year before.

Meta has warned it will continue to come up against headwinds in early 2022. Firstly, engagement and impressions are both coming under pressure as Meta faces tougher competition for people’s time as it battles against the likes of TikTok, YouTube and Snapchat. Its decision to push its new shorter-form video service Reels is also hurting income as it isn’t as lucrative as its main Feed and Stories functions.

The privacy changes introduced by Apple last year, which has made it much harder for social media platforms to target ads and track people’s behaviour online, will also continue to hit the business after being introduced in the second half of 2021. That comes at a time when Meta is expecting demand from advertisers to wane as they adjust budgets amid the inflationary environment and supply chain problems. With that in mind, comparatives will be tougher in the first half of 2022 as it will lap a period when Apple’s significant changes had not yet been implemented and demand was stronger thanks to a better macro environment. It has also said foreign exchange will pose a headwind. Markets believe there are other reasons to be cautious ahead of the results. Social media use may have declined in those markets that have reopened their economies, encouraging people to spend less time online as they get back out and about to make up for lost time during the pandemic.

Meanwhile, it isn’t just Meta’s ability to grow its user base and squeeze more money out of advertisers that is a cause for concern. The ambition to act as the core platform for the metaverse, underpinned by its decision to change its name to Meta last year, has provided a new long-term catalyst for the company but one that is significantly dragging down profits in the meantime. Its new Reality Labs division that homes its virtual reality and metaverse activities booked over a $10 billion operating loss in 2021 and is forecast by Wall Street to report another hefty $3.5 billion loss in the first quarter of 2022. For now, Meta is a company pursuing a costly dream to be the leading player in the metaverse while its core business built around social media and advertising is struggling.

‘If last year was about putting a stake in the ground for where we’re heading, this year is going to be about executing,’ CEO Mark Zuckerberg told investors in the conference call that followed the last set of results.

The founder said Meta is working on improvements to its social media platforms Facebook and Instagram as well as its messaging services WhatsApp and Messenger by continuing to tinker with new tools and features to capitalise on areas such as online shopping and business-based group chats. It also continues to rebuild its advertising infrastructure to adapt to the changes introduced by Apple and new government regulations implemented in Europe, while conducting a major overhaul to its own privacy infrastructure over the coming years. Artificial intelligence also remains a key investment area for both its ad-based and metaverse businesses and Meta will also have to continue investing in data centres and networking as it continues to scale up.

With this in mind, Meta has said its capital expenditure budget for 2022 has been set between $29.0 billion to $34.0 billion and that total expenses will be in the range of $90.0 billion to $95.0 billion. That will be up from the $71.2 billion spent in 2021 but Meta has already cut its expense budget for 2022 from its original $97.0 billion target. Investors will want to see evidence that Meta has control over costs to ensure this doesn’t create another drag on profits.

The first half looks set to be a challenge for Meta, but things should improve in the second as it comes up against different comparatives. Meta delivered record revenue in 2021 and Wall Street has currently pencilled-in over 11% year-on-year revenue growth in 2022. But, while markets believe every single member of Big Tech will see earnings growth suffer from a severe slowdown following the bumper figures seen last year, Meta is the only one forecast to see earnings drop with analysts currently expecting the company’s adjusted EPS will dip 0.7% in 2022.

 

Where next for FB stock?

Meta shares fell another 12% last week and closed at a two-year low of $184 on Friday.

Trading volumes last week were over 10% above the 30-day average, suggesting the current downtrend has further room to go. The next key downside target is the level of resistance-turned support seen in 2019 of $173. A slip below there could open the door to sub-$160.

On the flipside, the RSI is on the cusp of entering oversold territory and we have also seen it diverge from the price, with the indicator remaining above the depths seen in March despite the stock hitting fresh lows. Both of these suggest the current downtrend is reaching exhaustion and that a move higher could be on the cards.

The 50-day sma, which currently sits at $211, has acted as a ceiling for the stock since it collapsed after its last set of results and this is the first upside target that needs to be recaptured. The March-high of $237 can then enter the crosshairs before $248 – the post-results high – comes into play. Notably, the 63 brokers that cover Meta believe the stock can recover all of those targets and both the 100-day and 200-day moving averages to climb back to $315 over the next 12 months, implying there is over 72% potential upside from the current share price.

Meta stock has plunged over 43% since its last set of disappointing earnings

 

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