Facebook (Meta) Likely Faced Weak Advertising Demand

Focus on Family Monthly Active People for META Social Networks

Key Takeaways

  • Analysts estimate adjusted EPS of $1.87 versus $3.22 in Q3 FY 2021.
  • "Family monthly active people," a measure of traffic on Meta's social networks, is expected to have increased 3.4% from the year-ago quarter, to just over 3.7 billion.
  • Revenue is expected to decline 5.6% year-over-year to $27.4 billion, near the midpoint of Meta's July forecast, which the company said assumed "a continuation of the weak advertising demand environment" in Q2.

Social media giant Meta Platforms Inc. (META) could use some good news in its Q3 FY 2022 results, due Oct. 26 after the closing bell.

Shares of Meta, which operates the Facebook, Instagram, WhatsApp, and Messenger platforms, are on track for the worst annual performance in the company's history, with a decline of more than 61% so far in 2022, versus about a 20% drop for the S&P 500 index (see chart below). The steepest bear-market decline among the Nasdaq's tech megacaps has dropped Meta's share price to levels first reached in 2016, and revisited in 2018 amid scandals over Facebook privacy and the use of the platform to sway elections.

The problems this year have been more routine, if no less damaging. In reporting its first-ever year-over-year quarterly revenue decline for Q2 2022, the company said its Q3 revenue outlook "reflects a continuation of the weak advertising demand environment we experienced throughout the second quarter, which we believe is being driven by broader macroeconomic uncertainty." The strong U.S. dollar, up 5% in the last three months based on the U.S. Dollar Index, has been an additional headwind, and likely would set back Q3 revenue by 6%, Meta said in July.

Meta 12-month stock performance versus S&P 500

The company's heavy investments in virtual reality technology have yet to pay off. Meanwhile, Meta's advertising market share has declined as a result of a policy change by Apple Inc. (AAPL) making it more difficult for advertisers to track the interests of iPhone users. Rapidly growing social media rival TikTok has forced Meta on the defensive, attempting to adopt TikTok's focus on videos after reportedly hiring lobbyists to attack the competitor.

The company is in the midst of a transition among key executives reporting to CEO Mark Zuckerberg. Sheryl Sandberg ended a 14-year tenure as Meta's chief operating officer on Aug. 1. David Wehner, chief financial officer (CFO) for the past eight years, is due to leave Nov. 1.

Shareholders are grumbling. Altimeter Capital CEO Brad Gerstner addressed an open letter to Zuckerberg on Oct. 24, calling on him to reduce Meta's workforce and scale back its virtual reality ambitions.

Meta Platforms' Earnings History

Meta posted record results in fiscal 2021, with annual revenue and adjusted EPS increasing 37% and 36%, respectively, as advertising demand and prices jumped amid an economic recovery.

In a foretaste of the tough times to come, Meta's stock fell more than 26% the day after the Q4 2021 report, in which the company projected Q1 2022 revenue below expectations.

The stock fared better following the Q1 2022 report, rallying 18% the next day as adjusted EPS beat expectations while revenue fell short.

Meta missed analysts' consensus EPS and revenue estimates for Q2 2022, and its stock fell 5.2% the next day.

Facebook (Meta) Key Stats
  Estimate for
Q3 FY 2022
Q3 FY 2021 Q3 FY 2020
Adjusted Earnings Per Share ($) 1.87 3.22 2.71
Revenue ($B) 27.4 29.0 21.5
Family Monthly Active People (B) 3.7 3.6 3.2

Source: Visible Alpha

Family Monthly Active People

Meta's primary source of revenue is advertising, and its advertisers are interested in reaching the visitors to the company's various social media networks. That makes "family monthly active people" a key measure of the audience Meta's family of properties attracts in a given month. The figure is the company's estimate of the number of registered or logged-in users of at least one of Facebook, Instagram, What'sApp, and Messenger over a 30-day period. Meta reported 3.65 billion family monthly active users in Q2 2022, up from 3.51 billion a year earlier.

To ensure its count of family monthly active people represents unique users, Meta must estimate how many of the accounts on all its services are used by more than one person, so that no user with multiple accounts is counted more than once. The company says it uses "complex techniques, algorithms and machine learning models" to exclude duplicate accounts. Its machine learning models rely on internal reviews of limited samples of user accounts, and are calibrated against user survey data. Meta estimates the error margin for its family monthly active people metric at 3%.

Article Sources
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  1. Meta. "Meta Reports Second Quarter 2022 Results."

  2. CNBC. "Meta Lost $2.8 Billion on Its Virtual Reality Ambitions During Q2."

  3. Appsumer. "Mobile App Advertising Benchmark Report: Apple Search Ads (ASA) Makes Moves."

  4. The Wall Street Journal. "Instagram Stumbles in Push to Mimic TikTok, Internal Documents Show."

  5. The Washington Post. "Facebook Paid GOP Firm to Malign TikTok."

  6. Securities and Exchange Commission. "Meta Platforms, Inc. Form 8-K/A."

  7. Securities and Exchange Commission. "Meta Platforms, Inc. Form 8-K."

  8. The Wall Street Journal. "Meta Investor Urges CEO Mark Zuckerberg to Slash Staff and Cut Costs."

  9. Meta. "Meta Reports Fourth Quarter and Full Year 2021 Results," Page 1.

  10. Securities and Exchange Commission. "Meta Platforms Inc. Form 10-Q," Page 34.

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