Meta Platforms nasdaq Meta Tops Earnings Forecasts but Stock Takes Hit on Ad Demand Warning

Meta Platforms (NASDAQ: META) Tops Earnings Forecasts, but Stock Takes Hit on Ad Demand Warning

In a late Wednesday earnings report, Meta Platforms (NASDAQ: META), the parent company of Facebook, revealed a 23% increase in revenue for the third quarter, outperforming Wall Street estimates. This led to an initial rally in Meta stock. However, it later reversed its gains in late trades after the company warned of weakening advertising demand.

Meta reported adjusted earnings of $4.39 per share on revenue of $34.1 billion for the third quarter, beating FactSet estimates of $3.64 per share and $33.6 billion in revenue. These results represent a significant 168% year-over-year earnings increase and a 23% rise in sales.

Mark Zuckerberg, Meta founder and CEO, expressed his satisfaction with the results, citing advancements in AI and mixed reality technologies, including the launch of Quest 3, Ray-Ban Meta smart glasses, and the AI studio.

During the earnings call, Chief Financial Officer Susan Li reported continued strong advertiser demand in key segments such as online commerce and gaming but also acknowledged softer ad spending correlated with the start of the Israel-Hamas conflict in the Middle East. However, she mentioned that the company had no substantial direct revenue exposure to the conflict.

Meta shares initially jumped as much as 5% following the report but later declined around 3% in late trading.

Before the earnings report, shares had closed down 4.2% at $299.53 on Wednesday. Meta stock has seen an impressive 150% gain this year, making it one of the top performers in the S&P 500.

Meta (NASDAQ: META) Outlook

Meta Platforms (NASDAQ: META) forecasts revenue between $36.5 billion and $40 billion for the fourth quarter, with analysts expecting $38.8 billion, as per FactSet.

The social media giant also disclosed its full-year expense expectations for 2024, forecasting expenses of $94 billion to $99 billion. Investors closely monitor this figure amid concerns that the company’s artificial intelligence and metaverse initiatives may incur substantial costs.

Mark Mahaney, an analyst at Evercore ISI, highlighted in a brief post-earnings release note that expense projections came in below Wall Street expectations, suggesting the possibility that the “Year of Efficiency” is evolving into the “Years of Efficiency.”

Meta Stock: Daily Active Users Up 7%

Meta’s Family of Apps, which includes Facebook, Instagram, Reels, Threads, and WhatsApp, saw a 7% annual growth in daily active users, reaching 3.14 billion.

Facebook’s daily-active-user base grew to 2.09 billion, up from 2.06 billion in the previous quarter. Analysts had predicted Facebook’s daily-user base to be 2.07 billion for the quarter.

Meta Platforms (NASDAQ: META) reduced its expenses to $20.4 billion, a 7% decrease from last year. Advertising revenue from the Family of Apps continued to represent a significant portion of Meta’s overall revenue.

Metaverse Losses Continue Stacking

Meta reported a 26% decrease in revenue for its metaverse-focused Reality Labs division, which amounted to $210 million. The division continued to incur losses, with a third-quarter loss of $3.75 billion, compared to $3.67 billion in the previous year.

The recent launch of the Quest 3 virtual-reality headset contributed to these losses, and Meta expects “operating losses to increase meaningfully year-over-year” in the Reality Labs division due to ongoing product development.