The Meta Platforms logo is seen in Davos, Switzerland on May 22, 2022.
Arnd Wiegmann | Reuters
It’s earnings week for Big Tech, with the four most valuable US companies plus the Meta reporting quarterly results.
Alphabet and Microsoft kick off the action on Tuesday, and Apple and Amazon wrap things up on Thursday. Sandwiched between them is Metta on Wednesday.
Investors in all five names have suffered this year as rising inflation, rising interest rates and recession fears hit the tech sector. In the mega-cap group, Meta suffered the most, losing half its value as Facebook’s struggling ad business has yet to show signs of recovery.
When Meta reports second-quarter numbers, Wall Street will be watching closely for indications that growth is poised to return. It should also see improved trends when it comes to users who have fled the company’s apps in recent quarters in favor of rivals like TikTok.
“They’re getting tired of it,” said Debra Aho Williamson, an analyst at research firm Insider Intelligence. “Users are definitely gravitating to other platforms or engaging less with Facebook, and when you start to see that happen in greater and greater numbers, that’s when advertisers really start to take notice.”
Facebook is expected to post its first year-over-year revenue decline in the second quarter, and analysts forecast a slight acceleration in the third quarter with mid-single-digit growth. The mood in the mobile ad industry is gloomy in the report.
Last week, Snap reported disappointing second-quarter results, lackluster revenue and earnings, and announced plans to slow hiring. Snap blamed a tough economy and Apple’s iOS privacy change as significant obstacles, along with competition from TikTok and others.
Barton Crockett, an analyst at Rosenblatt Securities, told CNBC that in terms of revenue, Snap and Meta are “in the same place.”
“They’re not growing, but they’re not really falling off a cliff right now,” said Crockett, who has a hold rating on both stocks.
From a consumer perspective, Snap is behaving better. The company said last week that daily active users grew 18% year over year to 347 million. Facebook’s DAUs rose 4% in the first quarter to 1.96 billion, and analysts expect that number to hold, according to FactSet, which would represent about 3% growth from a year earlier.
Like Snap, Facebook was hit hard by Apple’s iOS update, making it harder for advertisers to target users. Much of Facebook’s value to marketers is its targeting capabilities and the ability to track users across multiple third-party sites.
With shares down 50% this year, Meta’s market capitalization has fallen below $500 billion, making the company worth less than Tesla, Berkshire Hathaway and UnitedHealth, in addition to its Big Tech peers.
Amazon is down 27% in 2022, while Alphabet is down 25%, Microsoft is down 23% and Apple is down 13%.
The last time Meta reported results, revenue fell short of forecasts. CEO Mark Zuckerberg said some of the challenges were due to the change in iOS as well as “broader macro trends, such as the softness in e-commerce after the acceleration we saw during the pandemic.”
The rise of TikTok poses a growing threat to Facebook and Snap as the popular short video app shakes up the lucrative teen and young adult market.
Meanwhile, Meta continues to spend billions of dollars creating the metaverse, a digital world that people can access with virtual reality and augmented reality glasses.
Meta is currently the leader in the nascent metaverse space, according to CCS Insight analyst Leo Gebi. Based on a recent VR and AR survey conducted by Gebbie’s firm, Meta is the company most people associate with the idea of the metaverse, underscoring the importance of its investment and marketing efforts.
But the metaverse is still years away from becoming mainstream and potentially generating profits. Gebbie said he’ll be looking to see if Zuckerberg spends a lot of time on the earnings call, discussing the futuristic metaverse, or concentrates on addressing Meta’s real-world challenges.
“I think we’re definitely going to see more focus on telling the story that Meta is a sane company,” Gebbi said.
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