Meta Platforms Q1 2022 Earnings Review
Discover more from Stock Market Nerd
Meta Platforms Q1 2022 Earnings Review
Exploring the Results of This Social Media Giant.
1. Meta Platforms Demand
Meta guided to a midpoint of roughly $28.0 billion in revenue and analysts were looking for $28.2 billion. The company posted $27.9 billion, missing its expectation by 0.3% and analyst expectations by 1.1%. The 7% revenue growth would have been 10% growth without an $893 million currency headwind.
Ad impressions across the family of apps rose 15% YOY while price per ad fell 8% YoY.
User growth was roughly in-line to slightly ahead of expectations across the board. I found it encouraging to see continued daily active user (DAU) growth for Facebook, specifically.
While it's not a metric most fixate on, I find DAUs remaining at 79% of MAUs to be an encouraging sign of durable, post-pandemic engagement.
2. Meta Platforms Profitability
Analysts were looking for $2.51 in EPS for the quarter. The company posted $2.72 in EPS, beating expectations by $0.21.
3. Guidance
Q2 2022:
Analysts wanted $30.7 billion in revenue. Facebook guided to a midpoint of $29.0 billion, missing expectations by 5.5%. This includes an assumed 3% unfavorable currency headwind like in Q1.
2022:
Guided to a midpoint of $89.5 billion in total expenses vs. $92.5 billion previously. More on this later.
Guided to $31.5 billion in 2022 CapEx (71% increase) -- unchanged.
Other quick notes:
Facebook bought back $9.4 billion in stock during the quarter and has another $29.4 billion in buybacks left to deploy.
Headcount rose 28% YoY to 77,805.
4. Notes from Founder/CEO Mark Zuckerberg
On Reels & AI-Powered Social Discovery:
Zuckerberg reiterated his confidence in Reels monetization continuing to ramp over the next several quarters to monetize at levels more similar to Feeds and Stories.
“Since I started Facebook 18 years ago, we’ve seen multiple media consumption shifts… back in 2012 when we transitioned to mobile, we saw explosive growth but not monetization and we leaned in anyway. We had a couple tough quarters until this became the foundation of our business. Similarly, in 2018 this happened with a shift to Stories from Feeds." — Founder/CEO Mark Zuckerberg
Zuckerberg made it a point to highlight that Reels ad load will only increase as content improves to diminish possible added user friction. Reels now makes up more than 20% of the time that people spend on Instagram and Video overall makes up 50% of the time that people spend on Facebook.
“We’re also seeing a shift in Feeds from being almost exclusively curated by your social graph to having more of it recommended by AI. Accurately recommending content from the whole universe you don’t directly follow unlocks a large amount of useful content you could have missed. The Reels AI is not just about a recommendation system for short-form video, but a discovery engine for our ecosystems… In the future I expect people to increasingly turn to discovery engine for entertainment, learning and connection." — Founder/CEO Mark Zuckerberg
On Ads and Apple:
“Signal loss from Apple’s iOS changes is a meaningful headwind, but we expect that with the right technology and investments, we will navigate okay over time... Over the next two years, we hope that this will drive higher advertiser returns and growth in the face of the signal loss. Over the longer term, these investments can provide sustainable competitive advantages.” — Founder/CEO Mark Zuckerberg
This is the most optimistic I've ever heard Zuck on overcoming Apple's signaling/privacy changes. Effectively ramping on-site conversions via click-to-ad marketing or Shops (with all of the lucrative 1st party data Meta has) will be key to overcoming Apple's obstacles.
On Attracting Talent:
“I’m trying to lead the company to being the premier builder for future social interaction in the Metaverse. If you care about those things, we’re getting the best people to work here. If you care about AI work on stuff like discovery across all these different formats, we’re the only place doing that. We’re attracting top talent.” — Founder/CEO Mark Zuckerberg
On the Metaverse:
Meta will launch an new version of "Horizon" this year to enable “stepping into the Metaverse from a lot more platforms even without a headset.”
Meta continues to debut Metaverse monetization tools for creators.
Meta Quest 2 continues to be the leading VR headset... by a wide margin.
This year Meta will launch a higher-end headset for more professional/work use cases. It sees this as replacing the laptop in its ideal future.
It's building an eye and face tracking system so "your avatar can make faces and eye contact to improve your sense of presence." I found this both cool and creepy.
On Meta’s Philosophy:
“Based on the strong growth we saw in 2021, we kicked off a number of several-year projects to accelerate our longer term investments around AI, business platform, and Facebook Reality Labs (FRL)… with our current business growth levels, we are now planning to slow the pace of some of our investment.” — Founder/CEO Mark Zuckerberg
“I wanted to share how I think about investments and margins. On the Family of Apps side, I’m confident we can return to better growth rates over time and sustain high operating margins. I recognize it’s expensive to build FRL, so over the next several years, our goal will be to generate sufficient operating income from the Family of Apps to fund the growth while growing our overall profitability. This will not happen in 2022 but longer term, that’s our expectation. While we’re going to build this, prolonged macroeconomic and business uncertainty could force us to trade off with shorter-term financial goals.” — Founder/CEO Mark Zuckerberg
Zuckerberg seemed to be holding the hands of investors fearing shrinking margins due to heavy metaverse spend much more than he has in the past. This was a change in messaging.
On macro:
“The pandemic accelerated e-commerce and our growth, but we’re seeing that trend back off.” — Founder/CEO Mark Zuckerberg
Facebook was also blocked by Russia which was a user growth and revenue headwind this quarter and will be next quarter too.
5. Notes from COO Sheryl Sandberg:
On Reels monetization signs:
Sandberg cited a case study from Deichmann (largest shoe retailer in Europe) to highlight the potential power of Reels. The company ran a Reels campaign delivering an 85% click through rate (CTR) and 30% more buying than the campaign with no Reels presence.
Sandberg highlighted another Reels case study where a direct to consumer brand split-tested a campaign and found Reels lowered cost per impression by 23%, raised unique audience reach by 52% and led to triple the video completion rate.
On Ads:
Sandberg highlighted their continued efforts to get businesses signed up for its conversions API so it can access more, relevant marketing data. During the quarter, it debuted its Conversions API Gateway to help with on-boarding.
The company has now closed the majority of the underreporting issue it had from Apple's changes. It will continue to fixate on empowering advertisers to be better at targeting and measuring while having less access to legacy signaling. That's the goal. The targeting hit will take longer to address.
6. Notes from CFO David Wehner
On Transatlantic data transfers:
“We continue to monitor developments regarding the viability of transatlantic data transfers and the impact on our European operations. We are pleased with the progress on a political agreement." — CFO David Wehner
On the quarter:
Family of apps operating margin fell from 48% to 42% sequentially (Q4 is always a strong quarter for it).
Ad revenue was relatively flat in Europe and North America and up 20% in APAC.
Reels continues to be additive to app engagement.
Engagement across all apps remains above pre-pandemic levels.
On next quarter:
Global MAUs will be flat to down sequentially partially due to Russia pain.
Q3 revenue growth will be higher than Q2 revenue growth of roughly 14.1% at the midpoint. There's "lots of uncertainty" baked into these estimates.
7. My Take
This was always going to be a tough quarter for Meta Platforms, but this was actually somewhat better than I was expecting. I continue to think this company is capable of overcoming Apple's IDFA changes and turning its ad-business back into a beloved cash cow. E-commerce growth recovering and Reels monetization ramping will also greatly help. I have no interest in doing anything but add to my already large stake.