Meta – TikTok, Facebook’s Time At The Top Is Up

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Meta Platforms Inc (NASDAQ:FB)’s first quarter revenue rose 7% to $27.9bn, below market expectations but within guidance. This reflected an 8% decline in price per ad.

Operating income fell 25% to $8.5bn as costs rose 31%, led by a near 50% increase in research and development costs, and a 28% increase in headcount to 77,805.

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Q1 2022 hedge fund letters, conferences and more

An average of 2.87bn people used the group’s platforms including Facebook, Instagram and Whatapp in March. Monthly active users were 3.64bn, both of which reflected a 6% increase.

In Family of Apps (FoA), under which Instagram, Messenger, WhatsApp and its old namesake sit, revenue was up 6.1% to $27.2bn. Higher operating costs meant operating income declined 13% to $11.5bn.

Reality Labs (RL), which harbours augmented and virtual reality hardware and software, saw revenue rise from $534m to $695m. Operating losses widened by over $1bn to $3.0bn.

The group expects second quarter revenue to be $28-$30bn. This reflects the continued negative impact of the war in Ukraine as well as a 3% decline due to exchange rate headwinds.

The group spent $5.55bn including leases in the first quarter. Capital expenditure expectations for the full year remain between $29bn and $34bn.

Facebook had a net cash position of $43.9bn at the end of the quarter. Free cash flow rose from $7.8bn to $8.5bn, reflecting favourable working capital movements.

Shares rose 13.9% following the announcement.

Meta's Earnings

Laura Hoy, Equity Analyst at Hargreaves Lansdown:

“Meta’s results left something to be desired, but it’s clear the market’s willing to try and give the Facebook parent the benefit of the doubt. Facebook’s revenue grew at its slowest pace in a decade, though it wasn’t totally unexpected after the group warned that rising competition from the likes of Tik Tok and Apple’s privacy update were weighing on growth. These were big steps in the wrong direction and suggest the group’s made little progress in clearing those hurdles.

Three months doesn’t leave a lot of time to turn a ship of Meta’s size, though. The market seemed to take comfort in the fact that user numbers are back on the up after the group reported its first ever user-number decline in the fourth quarter. This is indeed a green shoot, though 6% growth isn’t exactly shooting the lights out. Still, with almost 3bn people logging in each day mid-single digits may be the new normal. In any case, the market’s positive reaction suggests investors are willing to give Zuckerberg and his team a shot at reviving the social media stalwart.

Investors seem to be clamouring for good news and Meta’s results coming within touching distance of expectations scratched that itch. However, it was an ultra-low bar to clear.”

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