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Meta Q4 Earnings Preview

Last quarter, Meta's total revenue reached $34.15 billion, exceeding Wall Street's expected $33.43 billion. The revenue from the advertising business showed stable growth, reaching $33.64 billion, a 24% year-over-year increase. Reality Labs, responsible for the metaverse, generated $210 million in revenue, marking a 26% year-over-year decline and an operating loss of $3.742 billion. Net profit was $11.58 billion, a 163.6% year-over-year increase.

Despite the continuous losses in the Metaverse division after the financial report, Meta's core business maintains stable growth. The company's applications and Facebook's daily active users both sustain steady single-digit growth. Since rebounding from its low on October 26, 2023, Meta's stock has maintained a continuous upward trend, achieving a 194.1% increase in 2023. As of January 18, Meta's stock remained robust, touching $376, just a step away from its historical high of $384.3.

Meta's strong stock performance is influenced by its solid performance in the U.S. macro environment. After achieving profitability through significant layoffs last year, the company hopped on the AI train and benefited from the revived risk sentiment due to interest rate cut expectations. Despite the Metaverse division currently operating at a loss, Meta seems poised to break its historical stock price high in the short term, leveraging stable growth in its core business.

Expectations for Q4 Report

Management anticipates that the performance in Q4 will maintain stable growth, with total revenue expected to be in the range of $365 to $400 billion. The total spending for the full year of 2024 is estimated to be between $940 and $990 billion, with capital expenditures expected to range from $300 to $350 billion.

However, the operating losses for the metaverse division may significantly increase in 2024. Since 2019, Meta's VR and Metaverse division, Reality Labs, has accumulated losses of $47 billion, and this deficit is expected to persist. Despite the ongoing losses, management remains committed to continuous investment in these two divisions, projecting a development cycle of ten years for the metaverse.

Considering that some of the growth in Q4 performance has already been reflected in the stock price, and with no apparent short-term achievements in the fields of artificial intelligence and VR, the earnings conference is expected to focus more on the broader economic context. The assessment of the growth in Meta's primary business, advertising revenue, in the coming quarters of this year may be more crucial for the market's pricing of the company.

Meta is set to release its Q4 and full-year earnings after the U.S. market closes on February 1. Zacks Research predicts Q4 revenue to be $38.78 billion, a 20.56% year-over-year increase, and estimated earnings per share of $4.80, a 60% year-over-year growth.

Potential Risk Factors

  • Increased competition in new user growth, active user numbers, and advertising revenue.

  • Prolonged time for the significant investments in VR and the metaverse division to result in a lower operating profit margin

  • Regulatory scrutiny of artificial intelligence impacting the business model.
  • Global macroeconomic uncertainty, with economic growth slowdown adversely affecting the primary business's revenue.

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