Facebook parent company Meta Platforms recorded its fastest sales growth in two years and doubled its earnings in the third quarter. But Meta stock fell following earnings, as investors fretted the company's commentary about an uncertain advertising environment.
In earnings published late Wednesday, Meta said it earned an adjusted $4.39 per share on revenue of $34.1 billion for the quarter ending September 30. Analysts polled by FactSet expected Meta to report adjusted earnings of $3.64 per share from revenue of $33.6 billion.
Meta's results represent a 168% year-over-year earnings increase and 23% sales increase. The revenue increase is Meta's fastest year-over-year growth since September 2021 and marks record quarterly sales for the social media giant.
"We had a good quarter for our community and business," said Mark Zuckerberg, Meta founder and CEO, in the news release. "I'm proud of the work our teams have done to advance AI and mixed reality with the launch of Quest 3, Ray-Ban Meta smart glasses, and our AI studio."
Yet on the stock market today, Meta stock closed trading down 3.7% at 288.35.
Meta Outlook
Meta stock climbed following the initial report but fell into the red during the company's earnings call, as company officials warned about an uncertain ad environment for the current quarter.
For the current fourth quarter, Meta expects revenue of $36.5 billion to $40 billion. The midpoint of that range, $38.25 billion, was short of analyst expectation of $38.8 billion, according to FactSet.
Several analysts noted that the guidance also represented a wider range than Meta typically provides.
On the company's earnings call, Chief Financial Officer Susan Li said Meta was "seeing continued strong advertiser demand in key segments, including online commerce and gaming."
But Li also echoed Snap's warning a day earlier about the potential impact of the Israel-Hamas war.
"While we don't have material direct revenue exposure to Israel in 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.
Watching Hiring
After Meta stock bounced back during the company's self-proclaimed "Year of Efficiency," Wall Street is also closely watching Meta's hiring and other spending plans for the next year.
Meta expects full-year expenses for 2024 to hit $94 billion to $99 billion, according to its earnings release.
The company will invest in AI hardware and data centers, among other costs, according to Li.
While spending is growing year-over-year, the estimate came in lower than Wall Street's expectations of around $100 billion.
Evercore ISI analyst Mark Mahaney said the estimate points to "the probability that the Year of Efficiency is morphing into the Years of Efficiency," in a client note Wednesday.
But Meta also said its head count will grow this year as it works through a hiring backlog.
Meta's head count of 66,185 is down 24% from a year ago, the product of significant layoffs.
"We expect to end next year with reported in-seat head count meaningfully higher than our current
head count, but to grow at a slower rate beyond that," Li said.
Meta Stock: Daily Active Users Up 7%
The company's fourth-quarter outlook overshadowed stronger numbers for the third-quarter.
Daily users within Meta's Family of Apps — referred to by the company as daily active people — grew by 7% annually to 3.14 billion. The category includes Facebook, Instagram, Reels, Threads and WhatsApp.
Facebook's daily-active-user base, meanwhile, increased to 2.09 billion, up from 2.06 billion the previous quarter. Analysts expected the company to report Facebook's daily-user base at 2.07 billion for the quarter.
Meta cut its expenses to $20.4 billion, down 7% from the same period last year.
Advertising revenue from the Family of Apps represented nearly all of Meta's revenue, as is typical.
The company highlighted success in monetizing its TikTok competitor Reels.
The company's year-old AI advertising product, Advantage+, reached a $10 billion annual run rate.
Advertising sales were particularly strong in China, the company said. Facebook is banned in China but China-based companies can advertise their products on the platform.
Metaverse Losses Continue Stacking
For its metaverse-focused Reality Labs division, Meta reported a 26% decrease in revenue to $210 million. Reality Labs also continued to burn through cash. The division lost $3.75 billion for the third quarter, compared with $3.67 billion last year.
The company launched sales for its newest virtual-reality headset, the Quest 3, in October.
Still, Meta expects Reality Labs' "operating losses to increase meaningfully year-over-year" due to ongoing product development, the company said.
How Did Wall Street View Earnings?
Wall Street analysts are still nearly unanimous in rating Meta stock as a buy. But some did adjust revenue expectations for the fourth quarter following the company's commentary.
Wedbush analyst Scott Devitt lowered his revenue projected by .8% to $38.45 billion. But he maintained an overweight rating and 350 price target.
"We believe the focus has now turned to 2024 growth, and while the macro setup is uncertain, we believe Meta remains well positioned," Devitt wrote. He cited Meta's success in monetizing Reels and offering the AI-powered Advantage+ advertising service.
Bank of America analysts raised their target price for Meta to 384 from 375. Analyst Justin Post cited the company's 2024 spending guidance showing what he called continued cost discipline.
"With expense guide resolving some uncertainty, we believe stock can see renewed enthusiasm on 2024 upside, while growing optimism on AI capabilities can drive multiple expansion," Post wrote in a client note Thursday.
Before Wednesday's earnings report, Meta stock had gained 150% this year. Further, Meta stock is on the IBD Tech Leaders list.
