Meta Platforms will report its first-quarter earnings after the US market close on 26 April. After a brutal 2022, Meta’s shares become one of the top performers this year, up 75% year-to-date and rebounded more than 140% from its November low.
The company was criticised for its excessive spending on the Reality Labs, or so-called Metaverse. Following a slew of cost-saving measures, such as widespread job cuts and payroll expense reductions, the company expects to return growth in revenue after a three straight quarterly decline. So what are the key numbers that may steer its price actions in the upcoming earnings report?
The revenue growth is in focus in the “Year of Efficiency”
The reason why Meta’s shares were smashed in the past year is that ballooned expenses in Reality Labs dragged on its growth in the last three consecutive quarters. Since the second quarter of 2022, Meta Platforms’ annual revenue growth was -1%, -4%, and -4%, respectively. Its full-year revenue growth in 2022 declined by 1% to $116.61 billion, while the total expense swelled by 22% to $87.67 billion, where its cost in Reality Labs was $13.72 billion. The company, however, insists on devoting 20% of its overall costs and expense to Reality Labs in 2023 and expects “Reality Labs operating losses in 2023 will grow significantly year-over-year.”
Given the mounting criticism towards the massive spending on Metaverse business, the company started cutting costs by layoffs and reducing expenses in data centre construction, and shifting to more cost-efficient AI projects, which CEO Mark Zuckerberg calls 2023 a “year of efficiency”. Meta Platforms recently announced the second round of job cuts of 10,000 after 11,000 workforce layoffs in November, with an aim to reduce expenses by $5 billion from its prior outlook to between $89 billion and $95 billion this year.
The company gave revenue guidance of between $26 billion and $28.5 billion in the first quarter. And analysts’ estimate is $27.65 billion, or a 1% decline from a year ago. The earnings per share is expected to be $2.03, or a 25% drop annually.
Meta Platforms’ shares were extremely volatile in 2022. It may have been seen as an undervalued tech stock after the company beat expectations for its revenue growth in the final quarter of 2022, with its shares soaring more than 20% on the reporting day. Hence, a return to positive growth in revenue may take Meta’s shares to fly again.
Headwinds remain in the core business
Apart from its reckless endeavor in Metaverse, Meta’s core business, the family apps faced macro headwinds and fierce competition from TikTok. Apple’s iOS privacy change also added to its tough time in 2022. The income of Family of Apps was recorded at $42.661 billion in 2022, or a 25% decline from 2021. Its family daily active users rose to 2.96 billion in December 2022, or a 5% year-over-year growth, down from an 8% annual increase in 2021.
Nonetheless, Meta Platforms is still a cash-rich tech company with $40.74 billion in cash flow by the end of 2022, which may be in favor of investors who seek safety amid the bleak economic backdrop. The company announced a $40 billion increase to its stock repurchase plan on its last earnings reporting day in January after a $27.9 billion of its shares buyback in 2021.
Technical analysisSource: CMC Markets as of 26 April 2023 (Click to enlarge the chart)
Meta’s shares are under pressure as the bearish divergence in pricing, and RSI seems to remain bearish in the directional bias. The near-term support may be around 200 at the 38.20% Fibonacci retracement, while the potential long target could be 234 at the 50.0% retracement if earnings results beat expectations. A bullish breakout of 234 may take the shares to fill the price gap in early 2022 and approach 300 again.