Based on the results from other big tech companies, Meta Platforms may turn out to have been hit harder by the strength of the dollar than it had forecast.
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Facebook’s parent, Meta Platforms, will report its earnings on Wednesday. Analysts are bracing for disappointment.
The social media giant continues to grapple with a softer advertising environment, competition from TikTok, and the continuing effects of Apple ’s (ticker: AAPL) toughened stance on protecting the privacy of iPhone users. Meta has recently slowed down its plans for hiring, and launched a new version of its core Facebook experience to make it more TikTok-like.
In an ominous sign of what is ahead, Snap (ticker: SNAP) stock last week plunged nearly 40% after the company reported disappointing June quarter results, triggering a nearly 8% slide in Meta shares. For the year, Meta is off about 50%.
Meta previously projected second-quarter sales of between $28 billion and $30 billion, including a 3% headwind from moves in currency exchange rates. Given recent financial reports from IBM (IBM), Netflix (NFLX) and others, it seems likely that the impact of the currency moves will turn out to be well above what the company had forecast. The dollar has soared this year as the Federal Reserve has raised interest rates.
Overall, the Wall Street consensus sits at $29 billion in revenue for the June quarter, at the middle of the forecast range. The Street sees revenue of $30.7 billion for the September quarter, $125 billion for the year, and $143 billion for 2023.
Some analysts fear all of those estimates are simply too high, although most still recommend the company’s shares.
In a research note Monday, Mizuho analyst James Lee made exactly that point. For the June quarter, he sees $28.5 billion of revenue, with $29.4 billion in the September quarter. He cut his 2022 forecast by about $6 billion to $120.7 billion, while slashing his 2023 outlook by almost $17 billion to $130.9 billion.
Lee thinks Meta could cut expenses in response to the top-line pressure. Last quarter, Meta cut its forecast for 2022 total expenses to a range of $87 billion to $92 billion, from a previous forecast of $90 billion to $95 billion, with capital expenditures of $29 billion to $34 billion.
Lee reduced his price target on Meta shares to $250, from $325, though he maintains his Buy rating on the shares. “Although we expect a negative revision cycle, we believe it is anticipated by the market,” and that reduced guidance on operating expenses “could mitigate downside risk for the stock.”
BofA Global Research analyst Justin Post, who maintains a Buy rating and $233 target on Meta shares, thinks buy-side expectations for the quarter are around $28.5 billion in revenue, below the analyst consensus. His own model calls for $28.8 billion, with profits of $2.39 a share, below consensus at $2.61.
“Overall, we think Meta is likely seeing added pressure on ad spend since May, but is likely holding up somewhat better than Snap in Q3 due to a more established ad platform and larger advertiser base,” Post wrote. The BofA analyst thinks Meta hasn’t done enough to cash in on key assets, including Reels, Marketplaces, and Messaging, and he finds the current valuation attractive at 14 times estimated 2023 profits per share.
Evercore ISI analyst Mark Mahaney, like his peers, is bullish on Meta long term, but is worried about the near term, with estimates seemingly too high. “We anticipate Meta management’s tone being highly cautious” on the outlook for the rest of the year, Mahaney said in a research note previewing the quarter.
He thinks a key for the stock to gain is for Meta to provide evidence of the company’s ability to successfully develop and deploy an effective ad attribution model, routing around the Apple privacy changes.
On Monday, Meta shares have slipped 1.1%, to $167.35.
Write to Eric J. Savitz at eric.savitz@barrons.com
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