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Topline
Despite missing first quarter revenue estimates, shares of Facebook parent company Meta surged roughly 13% on Thursday after reporting solid user growth, which bounced back from a small decline in the previous quarter.
Even amid weaker guidance, Meta shares surged as user growth bounced back. Justin Sullivan/Getty Images
Key Facts
Meta was up 13% on Thursday morning to around $197 per share, as investors cheered the company’s increase in daily active users in the first quarter, from 1.93 billion to 1.96 billion.
User growth, which declined for the first time in the company’s history during the fourth quarter of 2021, bounced back and topped analyst expectations in the first quarter.
Despite solid user growth, Meta reported lackluster revenue ($27.9 billion versus $28.2 billion expected), with sales growing just 7% from a year ago—its first time as a public company that revenue only grew in single digits.
Total costs and expenses of $19.4 billion, meanwhile, surged 31% from last year in a dramatic increase—but the company forecasts lower expenses for the full year, reducing its spending estimate by roughly $3 billion.
The company projects revenue for the second quarter to come in between $28 billion and $30 billion, which falls short of the $30.7 billion forecast by Wall Street analysts—though Meta blamed part of the weaker guidance on the war in Ukraine and lost subscribers in Russia.
Before the stock’s rally on Thursday, Meta shares were down nearly 50% so far in 2022, hard-hit by the wider sell-off in tech shares that has gone on this year as investors worry about aggressive interest rate hikes from the Federal Reserve.
Key Background:
Despite missing estimates on several key metrics, Meta’s latest earnings report is still a big step up from fourth quarter earnings last year, when the company reported its first decline in daily active users on record. Meta also slashed its revenue outlook for 2022, and combined with the drop in user growth, shares plunged 26% on February 2 for the stock’s worst single-day drop ever.
Crucial Quote:
“The bar was super low” for Meta going into earnings to begin with, but “this report is likely to clear it,” says Vital Knowledge founder Adam Crisafulli. “The top line didn’t miss by that much and they lost less money in the metaverse business,” he points out, adding that other positive signs include a rise in ad impressions from last quarter as well as reduced expense forecasts for this year.
What To Watch For:
Meta still faces several business challenges and “bumps in the road on execution,” as well as concerns about growth and their competitive environment, says Charles Lemonides, founder and chief investment officer at ValueWorks. “On the flip side, the stock is a lot cheaper” after the recent tech sell-off and has come down to more attractive valuation levels, he adds.
Tangent:
A big earnings miss from streaming giant Netflix last week added to uncertainty around Big Tech stocks, which have already been hard-hit amid the wider market sell-off this year. Netflix reported it lost subscribers for the first time in over a decade, causing shares to plunge 35% in a single day.
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