27 October 2022
If you are covering Meta’s results, please see the following comment from Ben Barringer, equity research analyst at Quilter Cheviot:
“Meta’s latest results paint a picture of a company where all is not well. Despite lower expectations after Google and SNAP showed weakness in the digital advertising market, Meta managed to miss estimates and as such the stock is suffering down 19% after hours trading. The number showed continued pricing weakness and a weaker than expected guide for Q4.
“The worry for Meta is that this pain is likely to continue into 2023 as cost headwinds remain a real challenge and the strong dollar impacts on overseas earnings. Given revenues were down at a time when costs have grown significantly, modest user growth and impressions simply isn’t going to bail you out. Q3 profits halved and will continue to contract in 2023.
“The company continues to invest for the future, however, requiring capex for new data centres and infrastructure for the Metaverse at the forefront of plans. As such capital expenditure will rise over 10% in the 2023 as it tries to improve the service is provides advertisers and reverse the current malaise the company is facing. With revenues looking increasingly challenged , profits will ultimately get eaten in to. Also importantly return on invested capital will plummet given falling profits and cashflow and rising capex.
“This all comes on a backdrop of weak global economic growth, competition from TikTok and BeReal for eyeballs and competition from Netflix and Disney+ for advertisers, concerns around the profitability and ROI of the Metaverse, and the ever present threat of regulation. The outlook for Meta as a result remains very uncertain.”
