Meta Earnings Miss - Guides Weak

October 27, 2022

Meta Platforms reported financial results for the quarter ended September 30, 2022. The firm had earnings per share (EPS) of $1.64 with $1.89 expected. On the top line, the Facebook revenue came in $27.71 billion with $27.38 billion expected.

Daily Active Users (DAUs) was inline at 1.98 billion. Monthly Active Users (MAUs) were 2.96 billion while only 2.94 billion was sought. Average Revenue per User (ARPU) came in short at $9.41 because $9.83 was expected.

Meta guided for the fourth quarter at $30 billion to $32.5 billion. But, investors wanted sales of $32.2 billion.

"Our community continues to grow and I'm pleased with the strong engagement we're seeing driven by progress on our discovery engine and products like Reels," said Mark Zuckerberg, Meta founder and CEO. "While we face near-term challenges on revenue, the fundamentals are there for a return to stronger revenue growth. We're approaching 2023 with a focus on prioritization and efficiency that will help us navigate the current environment and emerge an even stronger company."

CFO Outlook Commentary

We expect fourth quarter 2022 total revenue to be in the range of $30-32.5 billion. Our guidance assumes foreign currency will be an approximately 7% headwind to year-over-year total revenue growth in the fourth quarter, based on current exchange rates.

To provide some context on the approach we are taking towards setting our 2023 budget, we are making significant changes across the board to operate more efficiently. We are holding some teams flat in terms of headcount, shrinking others and investing headcount growth only in our highest priorities. As a result, we expect headcount at the end of 2023 will be approximately in-line with third quarter 2022 levels.

We have increased scrutiny on all areas of operating expenses. However, these moves follow a substantial investment cycle so they will take time to play out in terms of our overall expense trajectory. Some steps, like the ongoing rationalization of our office footprint, will lead to incremental costs in the near term. This should set us up well for future years, when we expect to return to higher rates of revenue growth.

We expect 2022 total expenses to be in the range of $85-87 billion, updated from our prior outlook of $85-88 billion. This includes an estimated $900 million in additional charges related to consolidating our office facilities footprint that we expect to record in the fourth quarter of 2022. We anticipate our full-year 2023 total expenses will be in the range of $96-101 billion. This includes an estimated $2 billion in charges related to consolidating our office facilities footprint.

We expect the slight majority of our 2023 expense dollar growth to be driven by operating expenses, with the remaining growth coming from cost of revenue. We expect the percentage growth rate of 2023 operating expenses to decelerate meaningfully as we curtail non-headcount related expense growth and keep 2023 headcount roughly flat with current levels. Conversely, our growth in cost of revenue is expected to accelerate, driven by infrastructure-related expenses and, to a lesser extent, Reality Labs hardware costs driven by the launch of our next generation of our consumer Quest headset later next year.

Reality Labs expenses are included in our total expense guidance. We do anticipate that Reality Labs operating losses in 2023 will grow significantly year-over-year. Beyond 2023, we expect to pace Reality Labs investments such that we can achieve our goal of growing overall company operating income in the long run.

We expect 2022 capital expenditures, including principal payments on finance leases, to be in the range of $32-33 billion, updated from our prior range of $30-34 billion. For 2023, we expect capital expenditures to be in the range of $34-39 billion, driven by our investments in data centers, servers, and network infrastructure. An increase in AI capacity is driving substantially all of our capital expenditure growth in 2023.

Absent any changes to U.S. tax law, we expect our fourth quarter 2022 and our full-year 2023 tax rate to be similar to the third quarter 2022 rate.

In addition, as previously noted, we continue to monitor developments regarding the viability of transatlantic data transfers and their potential impact on our European operations.

Third Quarter 2022 Operational and Other Financial Highlights

Family daily active people (DAP) – DAP was 2.93 billion on average for September 2022, an increase of 4% year-over-year.

Family monthly active people (MAP) – MAP was 3.71 billion as of September 30, 2022, an increase of 4% year-over-year.

Facebook daily active users (DAUs) – DAUs were 1.98 billion on average for September 2022, an increase of 3% year-over-year.

Facebook monthly active users (MAUs) – MAUs were 2.96 billion as of September 30, 2022, an increase of 2% year-over-year.

Ad impressions and price per ad – In the third quarter of 2022, ad impressions delivered across our Family of Apps increased by 17% year-over-year and the average price per ad decreased by 18% year-over-year.

Revenue – Revenue was $27.71 billion, a decrease of 4% year-over-year, and an increase of 2% year-over-year on a constant currency basis. Had foreign exchange rates remained constant with the third quarter of 2021, revenue would have been $1.79 billion higher.

Costs and expenses – Total costs and expenses were $22.05 billion, an increase of 19% year-over-year. This includes an impairment loss of $413 million for certain operating leases as part of our ongoing work to align our office facilities footprint with our anticipated operating needs.

Capital expenditures – Capital expenditures, including principal payments on finance leases, were $9.52 billion for the third quarter of 2022.

Share repurchases – We repurchased $6.55 billion of our Class A common stock in the third quarter of 2022. As of September 30, 2022, we had $17.78 billion available and authorized for repurchases.

Cash, cash equivalents, and marketable securities – Cash, cash equivalents, and marketable securities were $41.78 billion as of September 30, 2022.

Long-term debt – Long-term debt was $9.92 billion as of September 30, 2022.

Headcount – Headcount was 87,314 as of September 30, 2022, an increase of 28% year-over-year.