Meta Platforms:Quarterly Results/2023 Q1

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See also: Meta Platforms:Quarterly Results/2023 Q2 | Earnings Season:2023 Q1 | Meta Platforms | Meta Platforms:Quarterly Results | InvestmentWiki Meta Platforms Expectations

Results

Meta Platforms topped analysts estimate in all areas except on Reality Labs revenue. Here are the results[1].

  • Revenue was $28.65 billion(+3% y/y), above analyst estimate of $27.61 billion(-1.1% y/y) and a beat on management upper point guidance of $28.5 billion(+2.21% y/y).
  • EPS was $2.2 versus $2.03 analyst estimate-a 10% beat.
  • Excluding restructuring charges Meta's EPS would be $2.64.
  • Average Revenue per User (ARPU) was $9.62 versus $9.30 expected.
  • Facebook Daily active users(DAUs) came in 2.04 billion(+4% y/y) versus 2.01 billion(+2.6% y/y) estimate.
  • Facebook Monthly active users was 2.99 billion(+2% y/y) as expected.
  • Family of Apps revenue was $28.31 billion(+4% y/y) versus $26.88 billion(-1.2% y/y) estimate.
  • Family of Apps daily active people standing at 3.02billion (+5% y/y).
  • Family of Apps monthly active people at 3.81billion (+5%y/y).
  • Reality Labs revenue was 339 million(-51%), below $660 million(-5% y/y) estimate.
  • Reality Labs losses was $3.992 billion(+35% y/y) in-line with $3.95 billion(+33% y/y) estimate.
  • Family of Apps ad impressions " increased by 26% year-over-year and the average price per ad decreased by 17% year-over-year."
  • Meta gave Q2 Revenue outlook of $29.5-$32 billion(2.3%-11% y/y) versus $29.48 billion(2.21% y/y) analyst estimate.
  • It also lowered FY 2023 total expenses to the range of $86-90 billion(+0.38% y/y at the mid-point) from $89-$95 billion(+4.9% y/y at the mid-point) given in March.
  • FY 2023 capital expenditure outlook remains unchanged at $30-33 billion to reflect its "ongoing build out of AI capacity to support ads, Feed and Reels, along with an increased investment in capacity for our generative AI initiatives."
  • Meta said it expects Reality Labs losses to increase y/y in 2023.

Earnings Call Insights

Efficiency

  • Management to continue championing for efficiency in the business. Mark Zuckerberg said, " Even as our financial position improves, I continue to believe that slowing hiring, flattening our management structure, increasing the percent of our company that is technical, and more rigorously prioritizing projects will improve the speed and quality of our work."[2]
  • While clarifing on the 1-2% headcount growth rate that has been going around, CFO Susan Li said that they "would expect headcount growth in excess of 1% to 2% in 2024." But much of the hiring will be to support priority areas such as "generative AI, ads, infrastructure, Reality Labs, some of the areas that we've been talking about."[3]

Performance of Reels

Reels performed very well during the quarter as proven by the following figures.

  • Reels are being shared more than 2 billion times each day, doubling over the last six months[4].
  • Since launching Reels, AI recommendations have driven a more than 24% increase in time spent on Instagram[4].
  • Reels monetization efficiency is up more than 30% on Instagram and over 40% on Facebook quarter-over-quarter[4].
  • They expect Reels to become neutral to overall ad revenue at the end of these year or early next year[5].
  • However, CFO Susan Li pointed out that it is more challenging to close the monetization efficiency gap in Reels than it was in Stories as "as people view a Reel for a longer time than a piece of Feed or Stories content, which results in fewer opportunities to serve ads in between posts."

Performance of Advantage+Shopping

  • Advantage+ Shopping is also doing well as Zuckerberg noted in the call that, "daily revenue from Advantage+ Shopping Campaigns is up 7x in the last six months."[4]

Focus on Metaverse

  • Meta will continue to focus on Metaverse. Zuckerberg said in the call, " A narrative has developed that we're somehow moving away from focusing on the metaverse vision, so I just want to say upfront that that's not accurate. We've been focusing on both AI and the metaverse for years now, and we will continue to focus on both."[6]
  • However, Zuckerberg didn't spend much time talking about Metaverse like in the past.

AI

  • Zuckerberg spend more time talking about AI than Metaverse. Generally, "AI today and the Metaverse longer-term" is the current main operating philosophy of the company[7].
  • He noted that they are no longer behind in AI infrastracture but that they will continue investing on it. Zuckerberg said they will "have a better idea of the trajectory of that investment later in the year" once they gauge the performance of their new products[6].
  • While answering a question on what he thinks about generative AI, Mark said that generative AI will improve engagement; hence creating more opportunities for their advertisers[8]. AI agents in particular will create a big opportunity for Meta platforms as tens of millions of small businesses will enlist it to answer customer questions for them[8].
  • CFO Li said their current main AI investments is towards supporting the building of the Discovery Engine, ranking unconnected organic content, ranking ads[9].

Advertising Spend

  • Advertising revenue was mainly from online commerce which benefited from " strong spend among advertisers in China reaching customers in other markets."[10]
  • Financial services and technology verticals were the largest negative contributors to ad revenue year-over-year[10].
  • Meta platforms ads impressions increased 26% and the average price per ad decreased 17%[11].
  • Regarding where they are post Apple's privacy policy, CFO Li said they feel good about their relative position. She said that their progress in AI as well as ads algorithms have enabled them to mitigate the impact of the ATT policy[9].
  • Meta sees great opportunity in click-to-message, particularly in WhatsApp and click to Instagram direct area[12].

Regulatory Environmennt

  • IDPC is expected to issue a decision in May relating to "transatlantic data transfers of Facebook EU/EEA user data, including a suspension order for such transfers and a fine."[7]
  • They are hopefull that the "new EU-US privacy framework will be implemented before a deadline for a suspension."[13]
  • They are unsure about the impact of the transatlantic data transfer rules on their revenue[13].
  • Susan Li noted that " roughly 10% of worldwide ad revenue comes from ads delivered to Facebook users in EU countries." But there are other variables to consider before they can come up with the possible impact of the suspension[13].

Q2 and rest of the year outlook

CFO Li feels confident about Q2 and back half of the year relative to Q1. However, she expects the year to remain volatile due to the current macroenvironment. Some of the things that makes her optimistic about the outlook are[14]:

  • There are tailwinds in Q2 and back half of the year caused by a weaker base period due to Russia war.
  • They expect FX headwind to be less compared to Q1.
  • Reels is a revenue headwind today but they expect it to be a revenue tailwind at the end of the year or early next year.

Guidance and Earnings Expectations

Our Expectations

We are expecting a beat on revenue given the following reasons: [1] (ToDo: Link picture once ready)

Management Guidance

Key Items Lower-point Y/Y growth Mid-point Y/Y growth Upper-Point Y/Y growth
Q1 2023 Revenue[15] $26 billion -6.84% $27.25 billion -2.36% $28.5 billion 2.12%
Q1 2023 Foreign Exchange headwind[15] 2%
2023 Total Expenses[15] $89 billion 1.5% $92 billion 4.9% $95 billion 8.3%
2023 Capital Expenditure[15] $30 billion -6.4% $31.5 billion -1.7% $33 billion 3.0%

Analysts Expectations

Key Items Estimate Y/Y Growth
Q1 2023 Revenue[16] $27.61 billion -1.1%
Q1 2023 EPS[17] $2.03 -26.8%
Family of Apps revenue during Q1[18] $26.88 billion
Q1 2023 Reality Labs costs[19] $4.42 billion +21%
Q1 2023 Reality Labs operating losses[17] -$3.95 billion +28%
Q1 2023 Reality Labs revenue[20] $660 million -5%
Q1 2023 Advertising Revenue[19] $26.83 billion -1%
Daily active users at the end of Q1 2023[20] 2.01 billion
Monthly active users at the end of Q1 2023[17] 2.99 billion
Average revenue per user at the end of Q1 2023[17] $9.30
2023 Capital expenditure[19] $31.8 billion -0.75%

Key Items to be checked during earnings

Below are the main items to examine during its earnings[21].

  • Ad sales in Q1 2023
  • Revenue: Did it beat management/analysts guidance?
  • Guidance for the next quarter below or above analysts estimate?
  • Earnings per share(EPS): Did it beat management/analysts guidance?
  • Daily/monthly active users.
  • Capital expenses: Is operating expenses for 2023 still in play?
  • Reality Labs losses.
  • Performance of its Advantages+ AI. Is it compensating for the losses incurred due to Apple's policy change?
  • Improvement in Reels
  • Zuckerbergs comments on TikTok.
  • Performance of Meta Verified

Recent Commentaries

Bullish

Evercore's Mark Mahaney - 4. April

Mark Mahoney is bullish on Meta. He believes that[22]:

  • Meta is still cheap. It's currently trading at 13 times the earnings.
  • Meta has great profit cycles i.e it will further broadens its marketing portfolio with click-to-message(CTM) ad offering. He noted that " CTM offers solutions for businesses in developing markets."
  • Multiples and estimates have been derisked in tech industry.

Jefferies' Brent Thill

Brent Thill is also bullish on Meta. He believes that[23]:

  • Expense savings, revenue acceleration and advertisers coming back to the platform, as well as reaccelaration of REELS usage will result in 12-14 dollar (Moritz:EPS?) earnings story.
  • There will be improvements in ads business as we go to back half of the year.
  • He doesn't think TikTok will be banned in US.

CNBC

Traders speaking on CNBC were bulish on Meta. They argued that[24]:

  • Meta still has more room for cost cuts. It added 90,000 jobs in the last four quarters but has only layed off 19,000.
  • Digital advertisers will come back.
  • Meta stock is cheap. It's trading 14 times the earnings.
  • Possibility of a TikTok ban.

UBS

UBS is positive on Meta. They noted that[25]:

  • Advantage+ is pushing return on ad spend (ROAS) back to pre-IDFA levels.
  • Engagement data keeps improving.
  • Cost cutting measures continue.

Bernstein's Mark Shmulik

Mark is bullish on Meta as he believes that it will take back its digital ad market share it lost due to Apple's policy change. He also believes that digital market will start to recover as we go through the year[26].

Bearish

Forrester's Nikhil Lai

  • “In [the first quarter], advertisers’ fear, uncertainty and doubt were exacerbated by the sudden bank failures,”He said[27].

Cowen's John Blackledge

  • He said that a first-quarter call with digital ad experts this month indicate a continued pricing weakness for Meta[27].

Insights

  • Visits to facebook.com increased 24.8% to 9.6 billion unique visits from 7.7 billion in the previous year same quarter[28].
  • Bloomberg notes that analysts have increased Meta's EPS by 15% over the last three months[29].
  • Bulls believe that ad business has stabilized[29]. Oppenheimer analysts noted in their recent report that facebook and instagram's share of spend is “stable/increasing,” while attribution is improving. Advertisers have started recording 28 days attribution windows compared to the previous seven days[30].
  • Apple's privacy policy is no longer affecting Meta's year-over-year growth[29].
  • Advertisers are relocating ad spending back to Meta due to effectiveness of Advantage+[31].
  • Fiverr's 7th Business Trends Index analysing global searches in the last six months puts Instagram Reel Editor searches (+4,760%)-Indicating growing desire to use Reels[32].

Competitor Results and Expectations

Expectations

Snap

Results
  • Snap's revenue grew -7% year-over-year to $989 million, below analysts estimate of $1.01 billion(-4.7%)[33].
  • Its adjusted EPS was 1 cents versus -1 cents expected[33].
  • Global daily active users were 383 million versus 384 million expected[33].
  • Average revenue per user was $ $2.58 versus $2.63 expected[33].
  • They are forecasting revenue in Q2 to decline 6% year-over-year to $1.04 billion versus analysts estimate of $1.10 billion(+1.85% year-over-year)[33].
Management Guidance

The management did not provide guidance for Q1 2023 given the uncertainties related to its operating environment[34].

Analysts Expectations
Key Items Analysts expectations Y/Y
Revenue[35] $1.01 billion -4.7%
EPS[35] $0.01 -50%
Global Daily Active Users (DAUs)[33] 384 million
Average revenue per user[33] $2.63

Pinterest

Results
  • Pinterest revenue grew 5% year-over-year to $603 million, above analysts estimate of $592 million(+3%)[36].
  • EPS was $0.08, above analysts estimate of $0.02[36].
  • The company is guiding for revenue growth in Q2 to come in-line with the growth in Q4 2022(+3.6% y/y) and Q1 2023 (+4.8% y/y) amid hopes that it will grow 6% y/y[37].
  • Nevertheless, Pinterest forecasts non-GAAP operating expenses to grow low teens on a percentage basis quarter-over-quarter[36].
  • CEO Bill Ready said, "In Q1, we grew our business globally through improved content relevance, shoppability, and by delivering strong results for our advertisers. Today, we’re taking meaningful steps towards expanding our ads business by opening up third-party ad demand on Pinterest, starting with Amazon as our first partner."[36]
Management Guidance

"Our current expectation is that Q1 2023 revenue will grow low single digits on a year-over-year percentage basis, which takes into account slightly lower foreign exchange headwinds than Q4 2022. We expect our Q1 2023 non-GAAP operating expenses to decline to low double digits percent quarter-over-quarter." The company said during Q4 2022 earnings[38].

Analysts estimates
Key Items Q1/2023 Q/Q growth
Revenue[39] 592.26 Million +3%
EPS[39] 0.02 -100%

Alphabet

  • Alphabet reported You Tube advertising and Google advertising revenue that came in-line with estimates. Revenues for Google Advertising, Search and Others grew 2% year-over-year, "reflecting an increase in the travel and retail verticals, offset partially by a decline in finance as well as in media and entertainment."[40]
  • CFO Ruth Porat said in the earnings call that You Tube ad spend is seeing stabilization. " In YouTube, we saw signs of stabilization in ad spend on a sequential basis. We continue to prioritize growth in Shorts engagement where we are encouraged by progress in monetization," She said.
  • Regarding the economy, Ruth said that it continues to remain uncertain but that foreign exchange headwinds have diminished. " In terms of the operating environment, our results in the first quarter reflected ongoing headwinds due to a challenging economic environment and the outlook remains uncertain. Foreign exchange headwinds have moderated, and we expect less of a foreign exchange headwind in the second quarter based on current spot rates, " She said in the earnings call. [41]
Analysts estimates
Key Items Analysts estimate Y/Y Growth Results Y/Y Growth
Revenue[42] $68.8 billion +1.2% $69.7 billion +3%
EPS[42] $1.07 -13.1% $1.17
You Tube Advertising Revenue[43] $6.64 -3.35% $6.69 billion -2.62%
Google advertising revenue[43] $53.75 -0.2% $54.55 billion -0.2%
Cloud Revenue[44] $7.49 billion +29.14% $7.45 billion +28.05%
Insights for Meta
  • Meta ad revenue will mostly likely beat or come in-line with estimates.
  • Foreign exchange headwinds to have less impact on Meta earnings.
  • Ad spend is seeing stabilization.

Small Competitor Results and Expectations

Omnicom Group

  • Omnicom Group reported revenue of $3.4 billion that exceeded analysts estimate by 2.3%[45].
  • Its advertising and media revenue grew by 5.1% year-on-year in Q1 2023[46].
  • CEO John Wren said during the earnings call, " “The Fed hasn’t stopped,” he said. “[I and other leaders] expect there is still going to be a lot more uncertainty until the Fed and its partners around the world think they’re done.”[46]
  • He added that clients continue to spend while “looking to create flexibility without abandoning the commitments they’ve made to grow their brands." He added that instead of cutting budgets preemtively, clients are “trying where they can to avoid long-term commitments and create as much flexibility in their spending as possible.”[46]
  • Omnicom maintained its guidance of 3-5% organic growtht in 2023[46].

S4 Capitall

  • S4 Capital expects advertising revenue to grow 7-8% in 2023[47].
  • Martin Sorrel while discussing his companies 2022 results said , "Clients are a little bit more hesitant going into 2023. They delayed finalizing their operation budgets and marketing budgets but now putting into place."[47]

References

  1. ↑ https://s21.q4cdn.com/399680738/files/doc_news/Meta-Reports-First-Quarter-2023-Results-2023.pdf
  2. ↑ https://s21.q4cdn.com/399680738/files/doc_financials/2023/q1/META-Q1-2023-Earnings-Call-Transcript.pdf (page 1)
  3. ↑ https://s21.q4cdn.com/399680738/files/doc_financials/2023/q1/META-Q1-2023-Earnings-Call-Transcript.pdf (page 9)
  4. ↑ 4.0 4.1 4.2 4.3 https://s21.q4cdn.com/399680738/files/doc_financials/2023/q1/META-Q1-2023-Earnings-Call-Transcript.pdf(page 2)
  5. ↑ https://s21.q4cdn.com/399680738/files/doc_financials/2023/q1/META-Q1-2023-Earnings-Call-Transcript.pdf (page 6)
  6. ↑ 6.0 6.1 https://s21.q4cdn.com/399680738/files/doc_financials/2023/q1/META-Q1-2023-Earnings-Call-Transcript.pdf(page 3)
  7. ↑ 7.0 7.1 https://s21.q4cdn.com/399680738/files/doc_financials/2023/q1/META-Q1-2023-Earnings-Call-Transcript.pdf(page 7)
  8. ↑ 8.0 8.1 https://s21.q4cdn.com/399680738/files/doc_financials/2023/q1/META-Q1-2023-Earnings-Call-Transcript.pdf(page 8)
  9. ↑ 9.0 9.1 https://s21.q4cdn.com/399680738/files/doc_financials/2023/q1/META-Q1-2023-Earnings-Call-Transcript.pdf (page 11)
  10. ↑ 10.0 10.1 https://s21.q4cdn.com/399680738/files/doc_financials/2023/q1/META-Q1-2023-Earnings-Call-Transcript.pdf(page 5)
  11. ↑ https://s21.q4cdn.com/399680738/files/doc_financials/2023/q1/META-Q1-2023-Earnings-Call-Transcript.pdf (page 6)
  12. ↑ https://s21.q4cdn.com/399680738/files/doc_financials/2023/q1/META-Q1-2023-Earnings-Call-Transcript.pdf(page 16)
  13. ↑ 13.0 13.1 13.2 https://s21.q4cdn.com/399680738/files/doc_financials/2023/q1/META-Q1-2023-Earnings-Call-Transcript.pdf(page 15)
  14. ↑ https://s21.q4cdn.com/399680738/files/doc_financials/2023/q1/META-Q1-2023-Earnings-Call-Transcript.pdf(page 12)
  15. ↑ 15.0 15.1 15.2 15.3 https://s21.q4cdn.com/399680738/files/doc_news/Meta-Reports-Fourth-Quarter-and-Full-Year-2022-Results-2023.pdf(page 3)
  16. ↑ https://finance.yahoo.com/quote/META/analysis?p=META
  17. ↑ 17.0 17.1 17.2 17.3 https://www.cnbc.com/2023/04/26/facebook-meta-q1-earnings-report.html
  18. ↑ https://finance.yahoo.com/news/meta-earnings-144552701.html
  19. ↑ 19.0 19.1 19.2 https://blog.visiblealpha.com/three-key-questions-about-meta-platforms-inc.-nasdaq-meta-in-april-2023-visible-alpha
  20. ↑ 20.0 20.1 https://www.wsj.com/articles/meta-platforms-q1-earnings-report-2023-aa820bcd
  21. ↑ https://www.fool.com/investing/2023/04/11/dont-expect-big-revenue-growth-from-meta-platforms/ https://www.investopedia.com/fb-q1-fy2022-earnings-report-preview-what-to-look-for-5267955
  22. ↑ https://www.youtube.com/watch?v=2zRc3CY0HxU
  23. ↑ https://www.youtube.com/watch?v=MZm9ckqBLoc&t=86s
  24. ↑ https://www.cnbc.com/video/2023/03/21/morgan-stanley-says-buy-meta.html
  25. ↑ https://www.investing.com/news/stock-market-news/meta-is-top-internet-idea-at-ubs-for-q1-earnings-season-google-also-expected-to-beat-432SI-3050471
  26. ↑ https://www.cnbc.com/video/2023/03/30/shmulik-you-dont-have-to-reach-far-to-find-good-value-in-the-communications-services-and-large-cap-internet-names.html
  27. ↑ 27.0 27.1 https://www.marketwatch.com/story/ai-is-the-word-as-alphabet-and-meta-get-ready-for-earnings-5084ff59#:~:text=Meta's%20annual%20advertising%20revenue%20is,round%20of%20layoffs%20on%20Wednesday.
  28. ↑ https://markets.businessinsider.com/news/stocks/website-traffic-hints-at-solid-q1-earnings-for-these-two-stocks-1032232112
  29. ↑ 29.0 29.1 29.2 https://www.bnnbloomberg.ca/meta-is-the-hottest-tech-stock-in-the-market-right-now-1.1904279
  30. ↑ https://www.proactiveinvestors.com/companies/news/1008631/meta-target-lifted-as-facebook-and-instagram-targeted-ads-are-tipped-for-ai-boost-1008631.html
  31. ↑ https://www.adweek.com/media/meta-regains-some-of-its-mojo-for-marketers-thanks-to-ai-tool-advantage/
  32. ↑ Source: Fiverr
  33. ↑ 33.0 33.1 33.2 33.3 33.4 33.5 33.6 https://www.cnbc.com/2023/04/27/snap-q1-earnings-report-2023.html
  34. ↑ https://s25.q4cdn.com/442043304/files/doc_financials/2022/q4/Q4'22-Press-Release.pdf
  35. ↑ 35.0 35.1 https://finance.yahoo.com/quote/SNAP/analysis?p=SNAP https://s25.q4cdn.com/442043304/files/doc_financials/2022/q1/Q1-2022-Earnings-Release.pdf
  36. ↑ 36.0 36.1 36.2 36.3 https://investor.pinterestinc.com/press-releases/press-releases-details/2023/Pinterest-Announces-First-Quarter-2023-Results/default.aspx
  37. ↑ https://seekingalpha.com/news/3961680-pinterest-falls-6-as-q1-beats-but-q2-costs-ramp-higher
  38. ↑ https://investor.pinterestinc.com/press-releases/press-releases-details/2023/Pinterest-Announces-Fourth-Quarter-and-Full-Year-2022-Results/default.aspx
  39. ↑ 39.0 39.1 https://finance.yahoo.com/quote/PINS/analysis?p=PINS
  40. ↑ https://seekingalpha.com/article/4596558-alphabet-inc-goog-q1-2023-earnings-call-transcript
  41. ↑ https://seekingalpha.com/article/4596558-alphabet-inc-goog-q1-2023-earnings-call-transcript
  42. ↑ 42.0 42.1 https://www.ig.com/en/news-and-trade-ideas/alphabet_s-share-price--what-to-expect-for-q1-2023-results-230419
  43. ↑ 43.0 43.1 https://finance.yahoo.com/news/alphabet-first-quarter-earnings-top-estimates-announces-70b-stock-buyback-200904755.html
  44. ↑ https://www.cnbc.com/2023/04/25/alphabet-googl-q1-earnings-report-2023.html
  45. ↑ https://finance.yahoo.com/news/omnicom-omc-q1-earnings-revenues-154003345.html#:~:text=Total%20revenues%20of%20%243.4%20billion,increased%201%25%20year%20over%20year.
  46. ↑ 46.0 46.1 46.2 46.3 https://www.campaignasia.com/article/omnicom-grows-5-2-organically-in-q1-but-caution-abounds/484084
  47. ↑ 47.0 47.1 https://www.youtube.com/watch?v=yBQ5u9BNW8k&t=91s
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