Facebook-Parent Meta Stock Falls Despite Strong Earnings

Meta shares initially jumped on the news but the gains were erased, and more, during the earnings call. The turning point seemed to be a warning from the company’s CFO about weaker advertising demand so far in the fourth quarter. Meta stock was down 4.6% at 9:45 a.m. Thursday, the morning after the report.

Operating margin jumped to 40%, doubling from the year ago quarter, a reflection of the company’s “year of efficiency” push to reduce costs. Costs and expenses were down 7%, while head count at quarter-end was 66,185, down 24%.

Meta also reported strong usage growth, with “daily active people” up 7% from a year ago, to 3.14 billion. “Monthly active people” reached 3.96 billion, up 7%. On Facebook, daily active users were 2.09 billion, up 5%; while monthly actives were 3.05 billion, up 3%.

“It was a very good quarter for our community and our business,” Meta CEO Mark Zuckerberg said on the company’s quarterly conference call with analysts.

Reality Labs, which includes the company’s Metaverse and Quest headset businesses, had a loss of $3.74 billion in the quarter, widening from $3.67 billion in the year-ago period. Reality Labs has lost $11.47 billion so far this year. The company said that losses in the unit would widen in 2024 from 2023 levels

Meta said it expects fourth-quarter revenue of between $36.5 billion and $40 billion, consistent with the Wall Street forecast of $38.7 billion. The company expects about a two percentage point tailwind from currency in the quarter.

CFO Susan Li said on the call that there was some softening in advertising demand early in the fourth quarter, which she said could be related to global events, including recent developments in Israel, while noting that the company’s direct exposure to the area is modest.

Meta also reduced its 2023 expense forecast to a range of $87 billion to $89 billion, from a previous range of $88 billion to $91 billion. Capital spending is now forecast to fall between $27 billion and $29 billion, down from a previous estimate of $27 billion to $30 billion.

For 2024, Meta sees capital expenditures increasing to between $30 billion and $35 billion, with overall expenses of between $94 billion and $99 billion. The company’s capital spending plans for 2024 are well below Wall Street estimates, which is pressuring the stocks of key suppliers. Shares of
Arista Networks
(ANET) are down 5.5% in late trading Wednesday, with
Pure Storage
(PSTG) 6% lower.

The company said that it expects higher payroll next year “as we work down our current hiring underrun and add incremental talent to support priority areas in 2024,” with a particular focus on “higher cost technical roles.” Li said that head count at the end of 2024 should be “meaningfully higher” than current levels, with slower growth after that.

Zuckerberg said AI would be the biggest investment area for 2024 for both engineering and infrastructure.

There are many moving parts in the Meta story, but advertising still accounts for most of the company’s revenue. In the quarter, ad impressions delivered across the network increased 31% from a year ago, while the average price per ad fell 6%. Zuckerberg said the company’s Reels feature, short videos that appear on both Facebook and Instagram, is now “net neutral to overall ad revenue,” after previously underperforming other content types. Li said on the call that the company expect Reels to provide a tailwind to revenue going forward.

Zuckerberg said that Threads, the company’s messaging platform that competes with X, formerly Twitter, now has just under 100 million monthly active users.

Meta shares have rallied 149% this year, driven largely by the company’s “year of efficiency” push to reduce costs and boost margins. The company has cut more than 20,000 jobs since last November.

Meta bought back $3.7 billion of stock in the quarter; the company has $37.2 billion remaining on its current share repurchase authorization.

Write to Eric J. Savitz at [email protected]