Meta Platforms Stock Plunges After Former Facebook Misses Q4 Forecast; Execs Talk Up Reels And Metaverse – Update

Dade Hayes
·4 min read
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UPDATED with executive comments. Executives at Meta Platforms, formerly known as Facebook, touted mobile video service Reels and the metaverse as two key growth areas after reporting wobbly fourth-quarter results.

Just prior to the call, shares in Meta Platforms plunged in after-hours trading after the company missed Wall Street forecasts for earnings in the quarter ending December 31.

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The stock, which has already been under pressure, dropped 19% soon after the numbers hit, with the decline soon reaching a 23% decline, shaving $200 billion from the company’s market value. Shares in Twitter and Snap got hit after the bell as well. Meta rose 1% during the regular trading day to close at $323 a share, on heavier-than-average trading volume.

Earnings per share of $3.67 on a diluted basis fell short of the consensus estimate of $3.85 and slid 5% from the same period a year ago. Revenue of $33.67 billion climbed 20% year-over-year and matched Street views.

“People have a lot of choices with how they want to spend their time, and apps like TikTok are growing very quickly,” CEO Mark Zuckerberg said. “This is why our focus on Reels is so important over the long term.”

In the 18 years since he founded Facebook, Zuckerberg said, he has seen the prevailing mode of communication shift from text in the 2000s, then to pics driven by smartphone adoption, and finally to video powered by broadband.

As far as the metaverse, Zuckerberg continued to wave the banner for “richer social experiences” available in virtual worlds. As more and more companies invest in the metaverse, he maintained, the more opportunities there will be for Meta. “This is not something we’re going to do on our own,” he said. “The metaverse will be built by creators and developers, it will be interoperable, and it will touch many, many parts of the economy.”

Last year’s renaming and strategic shift was the first step in the company’s evolution. “This year is going to be about executing,” he noted.

Meta offered guidance for the current first quarter that was softer than what Wall Street expected. Revenue will reach $27 billion to $29 billion, the company said, a level significantly short of analysts’ prediction for $30.15 billion. Explaining the shortfall, the company cited an ongoing share-shift to short-form video platform Reels, which generates less revenue than platforms like Feed or Stories but is strategically important as an answer to TikTok. Changes to Apple’s iOS have also hurt ad targeting and measurement, the company said, with a negative impact in the range of $10 billion for the full year.

The average number of people using one of the company’s apps — among them Facebook, Instagram, WhatsApp and Messenger — gained 8% from the year-ago frame to 2.82 billion. Facebook’s daily active user base on its own averaged 1.93 billion in December 2021, an increase of 5%.

The company formally changed its name from Facebook to Meta late last year, signaling a strategic shift from social media to the metaverse. The change also provided a welcome distraction from intensifying government scrutiny and customer backlash in the wake of whistleblower revelations. In the quarterly report, the company said its ticker symbol on the Nasdaq will change to “META” from “FB” at some point during the first half of 2022. The FB symbol has been in use since the company’s initial public offering in 2012.

From a financial standpoint, a structural change enacted along with the new name could have an impact on earnings and the company’s value in the eyes of Wall Street. The company now reports results in two business units: Family of Apps, including Facebook, Instagram, Messenger and WhatsApp; and Facebook Reality Labs.

The Reality Labs segment brought in $877 million during the quarter, up from $717 million in the year-ago period. It was the first specific breakout of the company’s emerging business, which it hopes will become the new centerpiece of the company as the decade unfolds.

On the expense side, Meta said it was earmarking $10 billion for investment in metaverse projects. In the earnings report, the company said infrastructure capacity may need to be improved for the Reality Labs segment, though at present it does not see the need for more capacity as a “significant driver” of expenses in 2022.

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