The Meta Platforms logo is seen in Davos, Switzerland on May 22, 2022.
Arnd Wigmann | Reuters
It’s Profit Week for Big Tech with the Four Most Valuable US Companies Plus Meta all report quarterly results.
Investors in all five companies have been hurt this year as rising inflation, rising interest rates and fears of a recession hit the tech sector. In the mega-cap group, Meta has suffered the most, losing half its value as Facebook’s ad business has yet to show signs of recovery.
When Meta releases Q2 data, Wall Street will be watching closely for signs that growth is poised to return. It also needs to see an improvement in trends when it comes to users who have fled the company’s apps in recent quarters in favor of competitors like TikTok.
“They’re starting to get tired of it,” said Debra Aho Williamson, an analyst at research firm Insider Intelligence. “Users are definitely gravitating towards other platforms or interacting less with Facebook, and when you start to see this happening in more and more numbers, that’s when advertisers really start to take notice.”
Facebook is expected to post its first year-over-year revenue drop in the second quarter, with analysts predicting a moderate acceleration in the third quarter with single-digit growth on average. The mood in the mobile advertising industry is often reflected in the report.
Snap last week informed disappointing second quarter results, missing earnings and profits, and announcement of plans to reduce hiring. Click cited the difficult economy and Apple’s iOS privacy change as major hurdles, along with competition from TikTok and others.
Barton Crockett, an analyst at Rosenblatt Securities, told CNBC that in terms of earnings, Snap and Meta “are both in the same place.”
“They’re not going up, but they’re not falling off a cliff right now,” said Crockett, who has a “hold” rating on both stocks.
From a user perspective, Snap holds up better. The company said last week that daily active users were up 18% year-on-year to 347 million. Facebook’s DAUs increased 4% in the first quarter to 1.96 billion, and analysts expect that number to hold, according to FactSet, which would mean an increase of about 3% from a year earlier.
Like Snap, Facebook was swipe Apple’s iOS update, making it difficult for advertisers to target users. Much of Facebook’s value to marketers lies in its targeting capabilities and the ability to track users across multiple third-party sites.
A 50% drop in shares this year saw Meta’s market capitalization fall below $500 billion, leaving the company worth less than Tesla, Berkshire Hathaway as well as UnitedHealthin addition to their colleagues from Big Tech.
Amazon is down 27% in 2022, Alphabet is down 25%, Microsoft is down 23% and Apple is down 13%.
The last time Meta reported results, revenue shy or ratings. Executive Director Mark Zuckerberg said some of the issues were related to the change in iOS, as well as “broader macroeconomic trends, such as the weakening of e-commerce after the acceleration we saw during the pandemic.”
The rise of TikTok is a growing threat to Facebook and Snap as the popular short video app loses profits in the teen and young adult market.
Meanwhile, Meta continues to spend billions of dollars to create metaversea digital world that people can access with virtual reality glasses and augmented reality.
According to CCS Insight analyst Leo Gebbi, Meta is currently a leader in the emerging space of the metaverse. Based on a recent VR/AR survey conducted by the firm Gebby, Meta is the company that most people associate with the idea of a metaverse, highlighting the importance of its investment and marketing efforts.
But the metaverse is still far from being mainstream and potentially profitable. Gebby said he’ll be watching if Zuckerberg spends a lot of time discussing earnings, discussing a futuristic metaverse, or if he focuses on solving the real problems of the Meta.
“I think we will definitely see more focus on telling the story that Meta is a smart company,” Gebby said.