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It perhaps comes as no big surprise that META Platforms (META - Free Report) , which is hugely dependent on advertising revenue, was hit by the broad-based economic slowdown resulting from the rate hikes. Alphabet (GOOGL - Free Report) , which is also dependent on advertising revenue, is seeing a similar softening. After all, when companies see demand slowing down, they try to curtail spending, and advertising is one of the first things that is hit.
Although it’s worth bearing in mind that Facebook has the resources to up its game while everybody grapples with a recession, so it can come back stronger. That doesn’t mean it’s a good place to put your money right now. There is limited visibility for the rest of the year, and indeed also for 2023. The sharp cut in analyst estimates is proof: 2022 estimated earnings are down $1.39 (12.4%) and 2023 estimated earnings down $1.80 (13.6%) in the last seven days.
Here's went wrong last quarter:
Overall advertising revenue missed estimates, although by less than a percentage point (it was down 1.5% year over year). Other revenue, which comprises less than a percentage point of total revenue, grew 13.5%, missing analyst estimates by 36.3%. As a result, total Family of Apps revenue also narrowly missed analyst expectations. Reality Labs (1.6% of revenue) was 11.8% ahead of estimates.
The miss in advertising revenue is attributable to the Rest of the World (ROW) region that analysts haven’t had a great track record forecasting. The miss in the last quarter was 1.3%. In the last five quarters, the surprise percentage has varied between a miss of 8.1% and a beat of 20.1%, averaging a 2.4% beat.
Advertising revenue in the U.S. and Canada reversed a negative trend to beat by 1.5% (the five-quarter average is -2.4%).
Advertising revenue in Europe beat by 2.2% (five-quarter average is +0.1%).
Advertising revenue in Asia beat by 1.9% (five-quarter average 3.0%). The beat percentage has been coming down in the last two quarters.
All except the ROW region beat total revenue projections.
Daily Active Users (DAUs) were better than expected across all regions except ROW.
Total monthly active users (MAUs) worldwide were more or less in line with analyst estimates (the five-quarter average was -0.8%). All except ROW MAUs were slightly ahead of analyst estimates.
However, engagement in the ROW and Asia appears stronger than in other regions, as seen from the average revenue per user (ARPU). ROW ARPU beat analyst estimates by 101.2% while Asia ARPU beat by 8.0%.
US & Canada and Europe ARPUs missed by 1.4% and 5.8% (Europe was impacted by the Ukraine war and FX).
Facebook expects revenue to shrink over 5% this quarter including an FX headwind of 6%. The macro environment remains significantly murky, as a result of which it is cutting its expenses outlook for 2022. As a result, total expenses guidance is down from $87-$92 billion to $85-$88 billion while capex was narrowed down from $29-$34 billion to $30-$34 billion.
Conclusion
From the above, it appears that Facebook is not seeing a dearth of active users, but certain factors are containing the revenue generated from them. As a result, revenue beats have come more as a result of user growth than ARPU. The deterioration of the euro and the Ukraine war stand out as the main culprits with their continued negative impact adding to the economic uncertainty to weaken the outlook.
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Why Did META Platforms Miss Estimates?
It perhaps comes as no big surprise that META Platforms (META - Free Report) , which is hugely dependent on advertising revenue, was hit by the broad-based economic slowdown resulting from the rate hikes. Alphabet (GOOGL - Free Report) , which is also dependent on advertising revenue, is seeing a similar softening. After all, when companies see demand slowing down, they try to curtail spending, and advertising is one of the first things that is hit.
Although it’s worth bearing in mind that Facebook has the resources to up its game while everybody grapples with a recession, so it can come back stronger. That doesn’t mean it’s a good place to put your money right now. There is limited visibility for the rest of the year, and indeed also for 2023. The sharp cut in analyst estimates is proof: 2022 estimated earnings are down $1.39 (12.4%) and 2023 estimated earnings down $1.80 (13.6%) in the last seven days.
Here's went wrong last quarter:
Overall advertising revenue missed estimates, although by less than a percentage point (it was down 1.5% year over year). Other revenue, which comprises less than a percentage point of total revenue, grew 13.5%, missing analyst estimates by 36.3%. As a result, total Family of Apps revenue also narrowly missed analyst expectations. Reality Labs (1.6% of revenue) was 11.8% ahead of estimates.
The miss in advertising revenue is attributable to the Rest of the World (ROW) region that analysts haven’t had a great track record forecasting. The miss in the last quarter was 1.3%. In the last five quarters, the surprise percentage has varied between a miss of 8.1% and a beat of 20.1%, averaging a 2.4% beat.
Advertising revenue in the U.S. and Canada reversed a negative trend to beat by 1.5% (the five-quarter average is -2.4%).
Advertising revenue in Europe beat by 2.2% (five-quarter average is +0.1%).
Advertising revenue in Asia beat by 1.9% (five-quarter average 3.0%). The beat percentage has been coming down in the last two quarters.
All except the ROW region beat total revenue projections.
Daily Active Users (DAUs) were better than expected across all regions except ROW.
Total monthly active users (MAUs) worldwide were more or less in line with analyst estimates (the five-quarter average was -0.8%). All except ROW MAUs were slightly ahead of analyst estimates.
However, engagement in the ROW and Asia appears stronger than in other regions, as seen from the average revenue per user (ARPU). ROW ARPU beat analyst estimates by 101.2% while Asia ARPU beat by 8.0%.
US & Canada and Europe ARPUs missed by 1.4% and 5.8% (Europe was impacted by the Ukraine war and FX).
Facebook expects revenue to shrink over 5% this quarter including an FX headwind of 6%. The macro environment remains significantly murky, as a result of which it is cutting its expenses outlook for 2022. As a result, total expenses guidance is down from $87-$92 billion to $85-$88 billion while capex was narrowed down from $29-$34 billion to $30-$34 billion.
Conclusion
From the above, it appears that Facebook is not seeing a dearth of active users, but certain factors are containing the revenue generated from them. As a result, revenue beats have come more as a result of user growth than ARPU. The deterioration of the euro and the Ukraine war stand out as the main culprits with their continued negative impact adding to the economic uncertainty to weaken the outlook.