Meta Platforms (FB) Receives A Thumbs Up For Renewed Focus On Earnings Generation
1:09 pm Thursday, April 28th, 2022
In the aftermath of disappointing earnings reports from Snap (SNAP) and Google (GOOG), investors were bracing for the worst ahead of Meta Platforms (FB) 1Q22 results. However, FB soothed those concerns by posting a surprising and sizable EPS beat, despite missing on the top line, as revenue grew by a modest 6.5%. The term that best describes FB’s performance is “better-than-feared”, which is good enough to spark a rebound after shares had plunged by nearly 50% year-to-date.
There’s more to today’s rally, though, than just some bargain hunting from value-oriented investors. FB’s earnings beat signifies a shift in the company’s focus toward improved profitability. During yesterday’s earnings conference call, CEO Mark Zuckerberg commented that FB is planning to slow the pace of its investments to better align itself with its current growth rates. Accordingly, the company cut its FY22 expense guidance to $87-92 bln from $90-95 bln. Efforts to rein in spending are already evident, as total costs and expenses increased by 31% in Q1 compared to 38% last quarter, when FB missed EPS expectations.
This renewed attention to the bottom line is music to investors’ ears because it shows that FB isn’t willing to completely sacrifice earnings potential while it continues to build out the metaverse. As Zuckerberg has frequently acknowledged, it may take years before the metaverse is providing a positive return on investment.
Other facets of FB’s earnings report painted a more mixed picture.
Facebook daily active users (DAUs) is a key engagement metric that advertisers monitor to assess whether they want to spend more or less on the platform. Last quarter, some panic set in after DAUs showed an unexpected sequential dip to 1.93 bln. Heading into the Q1 print, fears grew that rising competition from TikTok would chip away at DAUs again. To investors’ relief, DAUs edged higher to 1.96 bln.
The slight bump doesn’t resolve the longer-term threat that TikTok poses, though, and FB is fighting an uphill battle in its effort to slow the momentum of the short-format video platform. COO
Sheryl Sandberg commented last night that the company’s progress toward generating significant money from Reels — FB’s short-format video app — will be a “multiyear journey”.
FB’s Q1 results and outlook certainly weren’t exceptional. A skeptic would say that the company simply hurdled a very low bar, setting the stage for today’s relief rally. While there is some truth to that, there’s more to the story. Specifically, FB’s renewed focus on profitability should have analysts ratcheting their FY22 EPS estimates higher. That is good news for a stock that is badly in need of a bullish catalyst.
