Shares of Meta Platforms Inc. abruptly switched course late Wednesday, going from gain to pain, in extended trading after the Facebook parent company easily topped earnings expectations but spooked Wall Street with talk of its immediate future.
Meta
META,
Chief Financial Officer Susan Li disclosed on Meta’s earnings call that the company has seen softness in the advertising market following the start of the Middle East war, which she said has created “greater uncertainty” and “volatility” in the current quarter.
“While we don’t have material direct revenue exposure to Israel and the Middle East, we have observed softer ad spend in the beginning of the fourth quarter, correlating with the start of the conflict, which is captured in our Q4 revenue outlook,” Li said.
The commentary dovetailed with similar commentary from Snap Inc.’s
SNAP,
management on Tuesday.
Read: Snap posts surprise revenue growth, but Israel conflict is making advertisers skittish
Further rattling investors, Li declined to offer revenue guidance for fiscal year 2024. When pressed by an analyst to offer top-line “puts and takes” for next year, she referred to her previous comment on the “volatile macro environment” that Meta has already seen in the fourth quarter this year.
“I think that will obviously have a big impact on the advertising market next year, and it’s something we’ll be keeping a very close eye on, but ultimately, we’re very subject to volatility in the macro landscape,” she said, according to a transcript provided by AlphaSense/Sentieo.
Meta shares, which had advanced more than 4% shortly after the company released its results, reversed course and were off more than 2% following the earnings call.
The forward-looking comments overshadowed better-than-expected performance in the third quarter.
Meta rang up quarterly net income of $11.6 billion, or $4.39 a share, compared with net income of $4.4 billion, or $1.64 a share, in the year-ago quarter. Net income was up 164% from a year before.
Analysts surveyed by FactSet had expected on average earnings of $3.64 a share.
Revenue, meanwhile, climbed 23% to $34.2 billion from $27.7 billion in the year-ago quarter. Analysts had been looking for $33.6 billion.
A rebound in advertising, the monetization of Instagram and Reels, and AI-fueled ad targeting and measurement contributed to the quarter’s performance. Meta’s upbeat results come on the heels of a similarly strong quarter from Google parent Alphabet Inc.
GOOGL,
GOOG,
which reported earnings a day earlier.
Read: Google’s stock sheds market cap the size of Nike in one of Wall Street’s five worst drops ever
“We’re a leaner organization, shipping faster and advancing the state of the art in all of our long-term initiatives,” Chief Executive Mark Zuckerberg said on the earnings call. “And while investing heavily for the future, we also just recorded our highest operating margin in two years, so I’m looking forward to carrying this product momentum and operating discipline forward.”
Meta said it reduced its worldwide workforce 24% on a year-over-year basis, as of Sept. 30, when headcount was 66,185.
Meta executives forecast fourth-quarter revenue of $36.5 billion to $40 billion, while analysts on average were expecting $38.8 billion, according to FactSet.
“The anticipated global surge in digital ad spending, poised to hit $667.6 billion next year, combined with Meta’s effective execution and cost control, puts the company on strong footing,” Insider Intelligence analyst Jeremy Goldman said in emailed comments.
The company also cut its full-year outlook for total expenses and now expects $87 billion to $89 billion. The prior forecast was for $88 billion to $91 billion. Meta now expects 2023 capital expenditures of $27 billion to $29 billion, whereas its earlier outlook was for $27 billion to $30 billion.
Read: Nvidia and Arista see their stocks drop as Meta capex outlook trails estimates
“We expect Reality Labs operating losses to increase year-over-year in 2023,” the company said in its release.
Facebook had 3.14 billion daily active users, up 7% from a year ago, and the “family” of Meta apps—which includes Instagram—reported daily active users of 3.96 billion, also up 7%.
Meta’s stock has skyrocketed 149% so far this year, while the broader S&P 500 index
SPX
has increased 9%.
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