Meta Platforms will deliver fourth-quarter earnings Wednesday, the first report since changing its name from Facebook. The company will come with a new reporting structure, which could affect FB stock.
Facebook changed its name to Meta three months ago. It set a new direction that includes a $10 billion investment. With the rebranding, Meta declared itself a metaverse company in an attempt to distance itself from Facebook, which is embroiled in a cauldron of scandals.
The transformation of Facebook kicks off with a new financial reporting structure consisting of two sectors.
One sector, called Family of Apps, includes detailed data on Facebook, Instagram, Messenger, WhatsApp, and other services. The other sector is called Facebook Reality Labs, or FRL. That's the metaverse side of the company. This category involves augmented and virtual reality hardware, software, and content.
Also, this will be the first time FB stock breaks out the results of its augmented and virtual-reality hardware unit. Facebook previously warned that Reality Labs would not be profitable any time soon. That's due to the $10 billion metaverse investment.
Facebook Bets Big On Metaverse
"We expect our investment in Facebook Reality Labs to reduce our overall operating profit in 2021 by approximately $10 billion," the company said in its third-quarter earnings release. "We are committed to bringing this long-term vision to life and we expect to increase our investments for the next several years."
Technologists describe the metaverse as the next-generation version of the internet. Described as a shared, 3D virtual environment, people can meet in a virtual world. They can engage in work activities, play games or to simply visit with friends, among other things.
The consensus among FB stock analysts is for adjusted earnings is $3.85 a share. In comparison, Facebook reported earnings of $3.88 in the year-ago period. Analysts expect sales of $33.7 billion, up 20%, according to FactSet.
Meta previously warned of uncertainties about the earnings report. This includes continued headwinds from the changes Apple made to its operating system. The changes give users more control over privacy. However, it's now harder for advertisers to track ad performance.
Meta gets almost all its revenue from advertising. It's the second-largest digital ad platform in the world after Google-parent Alphabet. Google reports quarterly earnings late Tuesday.
Price Targets On FB Stock
Heading into the earnings report, RBC Capital Markets analyst Brad Erickson has a buy rating on FB stock and price target if 400.
Of all the social media stocks, he said in a note to clients, Facebook has showed the most improvement relative to the Apple iOS change. On the upcoming conference call with analysts, he said, "A key question we'd hope to see addressed would be a clearer path towards initial metaverse monetization. Given the 1drag the initiative is already having, we think long-term investors are going to to require more visibility into what they are underwriting for management's desired next leg of growth."
Cowen analyst John Blackledge has an outperform rating on FB stock and price target of 415.
FB stock climbed 1.6% to 324.20, during morning trading on the stock market today.
Please follow Brian Deagon on Twitter at @IBD_BDeagon for more on tech stocks, analysis and financial markets.
