Earnings preview: Meta Platforms

• Meta Platforms to report earnings after market close today

• Revenue seen increasing 8%, net income seen 25% lower

• Expectations of first sub-10% sales growth since IPO

• Active users expected to increase after Q4 2021 drop

• Russia-Ukraine war potential risk to ad spending

• Shares trade 45% year-to-date lower

Following the earnings release from Microsoft and Alphabet on Tuesday, the time has come for release from another major US tech company - Meta Platforms, formerly known as Facebook. Social media giant, that is increasingly focusing on Metaverse, will report results for calendar Q1 2022 today after the close of the Wall Street session. Let's take a brief look at what markets expect from the report and what to focus on.

Sales increase but profits drop

Meta Platforms (FB.US) is expected to report an almost 8% jump in overall revenue and a corresponding jump in ad revenue, which accounts for almost all Meta's revenue. However, while the increase in revenue is positive, expectations point to the first quarter of less than 10% YoY sales growth since the company's debut in 2011. Things do not look rosy when it comes to profit measures. Q1 report is expected to show an almost 25% YoY drop in net income, to $7.14 billion. EPS is expected to be 21.5% YoY lower at $2.59. After a dip in the number of daily active users in Q4 2021, Meta Platforms is expected to report an increase of 0.5% QoQ in Q1 2022. A miss in active user numbers, and potentially another QoQ drop in number of active daily users, could be a major downside catalyst for Meta share price.

Market expectations

• Revenue: $28.24 billion (+7.9% YoY)

  • Ad revenue: $27.48 billion (+8.0% YoY)

• Facebook daily active users: 1.94 billion (+0.5% QoQ)

• Facebook monthly active users: 2.95 billion (+1.3% QoQ)

• EPS: $2.59 (-21.5% YoY)

• Net income: $7.14 billion (-24.8% YoY)

• Operating margin: 29.8%

Number of active users on watch

Among things that investors will pay a big attention to during Meta's earnings release will be active users numbers. Company reported a drop in the number of active daily users in Q4 2021 for the first in history and shareholders are surely eager to know whether it was a one-off situation or a beginning of a new trend. One thing is certain, as Facebook has been a social media leader for a long time, possibilities of attracting more users gets more limited.

Another factor to watch during earnings release is outlook for the future quarters. Market currently expects calendar Q2 2022 revenue to come in at $30.74 billion, what would mark a 5.6% YoY increase. This would be an even slower growth than is expected in Q1 2022. Note that a sales warning issued by Meta Platforms at the beginning of February sent shares 25% lower in a single session.

Comments on Russia-Ukraine war impact are likely as war in Eastern Europe has dent outlook for ad revenue somewhat. The Russia-Ukraine war is creating a risk of an economic slowdown in Europe, or even a recession. In such situations, advertisement spending is one of the first victims of cost-cutting measures undertaken by companies to cope with deteriorating economic backdrop.

A look at the chart

Taking a look at Meta Platforms chart (FB.US) at D1 interval, we can see that the company is trading at the lowest level since April 2020. A sales warning issued at the beginning of February sent shares into freefall, leading to a drop of more than 40% in less than 3 months. A recent recovery attempt was halted even before reaching the upper limit of the Overbalance structure and a stock resumed slide later on, dropping below support zone marked with 78.6% retracement of post-pandemic recovery move this week. A lot will depend on the upcoming earnings release. If Facebook shows a growth in active users as well as issues an upbeat guidance for the current quarter, shares may be about to rally. On the other hand, missing estimates could provide fuel for another leg lower in the current downtrend with pandemic lows in the $140 area being a potential target.

Source: xStation5