Major Contraction Likely for Meta Platforms' Earnings

Key Takeaways

Meta Platforms Inc. (META)’s fourth-quarter EPS probably declined to $2.20, a 40% drop from the previous-year quarter.
Analysts expect the social media company’s net income to drop 43% and revenue to fall 6% in the fourth quarter.
Meta previously admitted that pandemic-fueled growth hasn’t been sustained and that it would have to cut costs.
Analysts will determine whether the company’s current cost-cutting methods, such as significant layoffs, increased profitability.

Meta Platforms Inc. (META), the parent company of Facebook, is expected to report a 43% drop in its fourth-quarter net income compared with the same quarter the previous year. Shrinking advertising revenue and higher costs will likely weigh down the tech company’s earnings on Wednesday.

Meta’s earnings per share (EPS) are projected to fall 40% to $2.20 compared with the fourth quarter of 2021, according to Visible Alpha. Total revenue for the quarter likely will decline 6% versus the same period in 2021. This revenue number is in line with what Meta itself expected.

The company’s struggles were outlined in the management commentary accompanying its third-quarter earnings in October. At that time, Meta said it would be looking at ways to shrink headcount and consolidate infrastructure to cut back on costs.

Facebook’s user growth is slowing down under pressure from other social media platforms such as TikTok. While the pandemic fueled growth and investments into Facebook, anticipated post-pandemic growth didn’t quite materialize. That led to Meta laying off 11,000 workers, or nearly 13% of its workforce, just a few weeks after its third-quarter earnings were released.

Additionally, recent interest rate hikes are making borrowing more expensive. Tech companies like Meta have had to cut costs wherever possible to help offset increased spending to build capacity during the last couple of years.

All those factors have done a number on Meta’s share price, which fell more than 60% during 2022. In comparison, the S&P 500 Communication Services Sector Index declined almost 40%.

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META Key Stats

	Estimate fro Q4 FY 2022	Q4 FY 2021	Q4 FY 2020
Adjusted Earnings Per Share ($)	2.20	3.67	3.88
Revenue ($B)	31.5	33.7	28.1
Monthly Active People- Facebook Family (B)	3.7	3.6	3.3

Source: Visible Alpha

Key Metrics

Meta’s key metric, Monthly Active People, for the Facebook product family is seen rising somewhat, to 3.7 billion from 3.6 billion in the year-earlier quarter and above the 2020 fourth quarter in the early months of the pandemic, which helped increase social media use. This metric is used to count the number of unique users who visited a site within the past month.

Meta wasn’t alone when it laid off 11,000 employees last November to rein in costs. Other tech companies such as Alphabet Inc. (GOOGL), Amazon Inc. (AMZN), and Apple Inc. (AAPL) are also facing headwinds to expansion and will be reporting earnings this week as well.

— to news.google.com