Meta stock jumps on strong earnings

Meta has given better than expected guidance for the current quarter. The company expects revenue in the range of $29.5 billion to $32 billion, which is in line with consensus estimates of $29.5 billion.

The Internet company lowered its full-year forecast for total spending to $86 billion to $90 billion from $86 billion to $92 billion. It affirmed its 2023 capital spending guidance of $30 billion to $33 billion.

“We had a great quarter and our community continues to grow,” CEO Mark Zuckerberg said in the release. “We’re also becoming more efficient at building better products faster and putting ourselves in a stronger position to deliver on our long-term vision.”

Shares rose 9.7% to $229.74 after the release.

This is breaking news. Read the Meta Platforms earnings preview below and check back soon for more analysis.

A year of efficiency is running.

Meta Platforms, the parent of social networking sites Facebook, Instagram and WhatsApp, has found religion in recent months in cutting costs, and investors have been enthusiastically betting the company’s new focus on higher margins and improved profitability. The next milestone will be revealed on Wednesday when the company reports financial results for the March quarter.

The platform is set for Meta (Symbol: META ) CEO Mark Zuckerberg’s current crusade against the company’s disappointing third-quarter results, where Meta’s plans to improve spending have fallen on deaf ears and ill-advised investors.

A few days before that earnings report, Altimeter Capital founder Brad Gerstener made the case that the company needs to cut costs and reduce headcount by at least 20 percent. But Zuckerberg didn’t do that, at least not that day, and the stock sold off 25% the day after the report, and in the days that followed traded lows below $90.

But Meta stocks have made a surprising rally, rising 140%. That move began with the company’s Nov. 9 announcement of 11,000 job cuts — and accelerated in December earnings, which included another 10,000 layoffs. But the company’s underlying financial performance is still challenging – this could be the fourth quarter in a row with negative revenue growth, a soft online advertising market and competition from rivals, especially Tiki Talk.

If Zuckerberg plans a new round of cost cuts, Wednesday will be the day to reveal them. The Street is looking for signs that previous deals are paying higher margins — and analysts will be watching for any sign that the company may be undermining its ambitions to break up.

For the March quarter, Meta is projecting revenue between $26 billion and $28.5 billion, down 2.4% from a year ago at the midpoint. Street consensus estimates tracked by FactSet call for $27.7 billion in revenue, with a profit of $2.02 billion.

Other key data points to watch: Operating income, estimated at $6.7 billion. This reflected a $10.3 billion gain from the family of apps, which includes the company’s social media offerings, and was offset by a $3.9 billion loss from its Reality Labs, VR headset and Metaverse businesses. Advertising revenue is expected to be $26.8 billion.

In terms of operational metrics, the route sees 3 billion monthly active users with over 2 billion daily active users.

RBC Capital analyst Brad Erickson wrote in a recent research note that he sees some signs of softening in the ad market, adding more caution to the quarter. Although he thinks Q1 revenue will be at the high end of the guidance range, and argues that Q2 guidance should at least match the current consensus of $29.5 billion. Ericsson set an outperform rating and a $225 target on the stock.

Boff Global Research analyst Justin Post also reiterated his bullish stance on the stock ahead of the report, maintaining his buy rating and $250 target. He thinks there will be some pressure on ad spend from financial sector issues. Its revenue forecast is $27.1 billion below consensus.

As the lower headcount and other cost reductions begin to roll through financial models, Post thinks the biggest positive call takeout could be a hint from the Street’s 2024 EPS consensus forecast of $12.46. But Post adds that the biggest risk could be the road’s Q2 revenue forecast, which estimates a near 9% sequential growth.

“While we think the uncertainty of a 23-year recession will put a lid on sector revenue estimates, we like Meta’s set to accelerate earnings. Also, TikTok’s risk on low advertiser adoption is declining, while TikTok regulation could lead to an upside.”

Mizuho analyst James Lee is bullish on the quarter as well. Lee, who has a buy rating and a $235 target on the stock, thinks the build-up to earnings looks positive, despite already positive investor expectations.

Although macro uncertainties are overstated, we believe positive leading indicators in engagement should warrant a lower guard for FY 23. Additionally, we still see a lot of potential for price optimization,” Lee wrote.

Write to Eric J. Savitz at eric.savitz@barrons.com