Facebook’s advertising business is at the heart of Big Tech’s earnings

The Meta Platforms logo is seen in Davos, Switzerland on May 22, 2022.

Arnd Wiegmann | Reuters

It’s an earnings week for Big Tech, with four of America’s most valuable companies plus Meta reporting quarterly results.

Alphabet and Microsoft start the campaign on Tuesday, while Apple and Amazon end on Thursday. Between them is Metta on Wednesday.

Investors in all five names have suffered this year as soaring inflation, rising interest rates and fears of a recession hit the tech sector hard. Among the mega-cap group, Meta was the hardest hit, losing half its value as Facebook’s struggling ad business has yet to show signs of recovery.

When Meta reports its second-quarter numbers, Wall Street will be watching closely for signs that growth is poised to return. It also needs to buck trends when it comes to users who have fled the company’s apps in favor of rivals like TikTok in recent quarters.

“They’re getting tired of it,” said Debra Aho Williamson, an analyst at research firm Insider Intelligence. “Users are definitely gravitating to other platforms or engaging less with Facebook, and when you start to see that happen in larger and larger numbers, that’s when advertisers really start to take notice.”

Facebook is expected to post its first year-over-year decline in revenue in the second quarter, and analysts are predicting a slight acceleration in the third quarter with mid-single-digit growth. The report says the mood in the mobile advertising industry is grim.

Snap reported disappointing second-quarter results last week, missing revenue and profit and announcing plans to slow hiring. Snap blamed the tough economy and Apple’s privacy changes to iOS as significant obstacles, along with competition from TikTok and others.

Barton Crockett, an analyst at Rosenblatt Securities, told CNBC that Snap and Meta are “in the same spot” in terms of revenue.

“They’re not going up, but they’re not falling off a cliff,” said Crockett, who has a hold rating on both stocks.

From a user perspective, Snap holds up better. Last week, the company said daily active users grew 18% year over year to 347 million. Facebook’s DAUs rose 4% in the first quarter to 1.96 billion, and analysts expect that number to hold, according to FactSet, which would equate to about 3% year-over-year growth.

“Snap is in a stronger position in terms of user growth,” Crockett said.

Like Snap, Facebook has been hit hard by Apple’s iOS update, making it harder for advertisers to target users. Much of Facebook’s value to marketers lies in its targeting capabilities and the ability to track users across multiple third-party sites.

The stock’s 50% drop this year has pushed Meta’s market cap below $500 billion, making the company smaller than Tesla, Berkshire Hathaway and UnitedHealth, in addition to its Big Tech peers.

Amazon is down 27% in 2022, while Alphabet is down 25%, Microsoft is down 23% and Apple is down 13%.

The last time Meta reported results, earnings missed estimates. CEO Mark Zuckerberg said some of the issues were related to the change in iOS as well as “broader macro trends such as the softness in e-commerce after the acceleration we saw during the pandemic.”

TikTok’s rise poses a growing threat to Facebook and Snap as the popular short-form video app falters in the lucrative teen and young adult market.

Meanwhile, Meta continues to spend billions of dollars building the metaverse, a digital world that people can access through virtual reality and augmented reality glasses.

According to CCS Insight analyst Leo Gebi, Meta is currently the leader in the nascent meta universe space. Based on a recent VR and AR survey conducted by the firm Gebbie, Meta is the company most people associate with the idea of ​​a meta universe, underscoring the importance of its investment and marketing efforts.

But the metaverse is still years away from being mainstream and potentially profitable. Gebbi said he’ll be watching to see if Zuckerberg spends a lot of time on the earnings call discussing a futuristic meta universe, or if he focuses on solving real-world problems for Meta.

“I think we’re definitely going to see more attention to getting the word out that Meta is a smart company,” Gebi said.

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Facebook’s advertising business is at the heart of Big Tech’s earnings

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