Are Meta and Google Crumbling in the Face of Macro-Economic Headwinds?
29 October 2022 - 3:58AM
Finscreener.org
Shares of Meta
Platforms (NASDAQ:
META) tanked close to 25%
yesterday after the social media giant announced its Q3 results
after the market closed on October 25. It reported adjusted
earnings of $1.64 per share, significantly lower than estimates of
$1.91 per share. The company’s revenue stood at $27.71 billion,
marginally higher than estimates of $27.53
billion.
However, sales were down 4%
compared to the year-ago period due to falling average ad prices
that declined by 18% year over year. Meta stock is now down 73%
from all-time highs. It continues to wrestle with a slowdown in ad
spending, Apple’s (NASDAQ: AAPL)
privacy changes, and rising competition from
TikTok.
Further, shares of
Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL), the parent company of Google, also fell
almost 10% yesterday as it disappointed investors with Q3 results.
Its revenue growth slowed to just 6% in Q3 compared to 41% in the
year-ago period as online ad spending remains tepid. Ad revenue for
YouTube fell 2% to $7.07 billion, compared to estimates of $7.42
billion.
Tech giant Apple has cut
production targets for its iPhone 14 line-up of smartphones,
while Microsoft (NASDAQ:
MSFT) also reported its
slowest revenue growth in the last five years. It seems like
big-tech stocks are likely to remain volatile in the near
term.
Let’s see what impacted the
performance of the two largest digital advertising companies in the
world in Q3 of 2022.
Meta is investing heavily in the metaverse
Meta forecast sales between $30
billion and $32.5 billion in Q4, compared to estimates of $32.2
billion. The company has now posted two consecutive quarters of
revenue declines, and investors are expecting the trend to continue
in Q4 as well.
While revenue was down 4% in Q3,
Meta’s expenses surged 19% year over year to $22.1 billion, while
operating income fell by 46% to $5.66 billion, indicating an
operating margin of just 20% compared to 36% in the year-ago
quarter.
Meta’s Reality Labs business
which includes investments in the metaverse segment, fell by over
50% to $285 million. However, this business reported a loss of
$3.67 billion, much higher than the $2.63 billion loss in the
year-ago period. In the first three quarters of 2022, Reality Labs
has burnt $9.4 billion.
In fact, Meta emphasized
operating losses for Reality Labs will grow significantly year over
year in 2023, making investors extremely nervous. The company
explained, “We do anticipate that Reality Labs operating losses in
2023 will grow significantly year-over-year. Beyond 2023, we expect
to pace Reality Labs investments such that we can achieve our goal
of growing overall company operating income in the long
run.”
Meta stock is now down trading at levels last
seen in 2016, underperforming the broader markets by a significant
margin
Lower ad spending impacting Alphabet stock
According to Google’s chief
business officer, Philipp Schindler, the digital advertising
behemoth experienced a pullback in spending on digital ad verticals
such as loans, mortgages, insurance, and
cryptocurrencies.
In order to combat a challenging
macro environment, Sundar Pichai claimed the company is “sharpening
our focus on a clear set of product and business priorities,” while
Ruth Porat, the finance chief, said, “we’re working to realign
resources to fuel our highest growth priorities.”
Google Cloud remained the
fastest-growing business for Alphabet, and this segment reported
sales of $6.9 billion in Q3, compared to $5 billion in the year-ago
quarter. However, losses for Google Cloud rose to almost $700
million from $644 million in Q3 of 2021.
Pichai explained Alphabet would
look to drive its costs down to combat the current environment,
which includes rising inflation, higher interest rates, and the
possibility of a global recession.
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