A little more than three months after changing its name to Meta Platforms and a day after Wall Street returned the favor of a massive revenue guidance miss by cratering its market cap, analysts scrambled to make sense of it all.
Facebook parent Meta lost about $232 billion in market capitalization Thursday (February 4) — the largest one-day drop by a single company in U.S. stock market history — after it said Q1 revenue would miss Wall Street forecasts by $2 billion, spurred by a combination of intense competition from TikTok, increasingly onerous privacy requirements from Apple Inc. and just plain bad luck. Meta’s Reality Labs unit, which creates the augmented reality and virtual reality products that are expected to be the building blocks of the metaverse, lost about $10.2 billion on revenue of $2.3 billion.
While Q4 revenue at $33.7 billion was even with estimates, Meta said it lost about 1 million daily global users in the quarter, adding to concerns that its relevance is slipping with younger consumers.
Meta’s dilemma is eerily similar to Netflix, which saw its stock fall 25% in January after it missed Q4 subscriber growth targets and said it would add just 2 million paying customers in Q1. Netflix has gained some of those losses back: It was trading at $405.18 on Friday afternoon, about even with the previous day.
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Meta shares fell more than 26% on Thursday, forcing analysts to rejigger their models for the stock and try to find some sense in such a dramatic miss. The stock fell another 2% on Friday, priced at $232.67 at 12:07 p.m.
In report after report, analysts that follow the stock pointed to the surprising impact of short-form video juggernaut TikTok — even Meta CEO Mark Zuckerberg said on an earnings conference call that TikTok was “growing at a much faster rate” than Facebook’s own Reels short-form video service.
At the same time, Apple’s new privacy measures for its iOS products are having a huge impact on ad revenue. On the conference call, Meta chief financial officer David Wehner said those iOS privacy requirements will cost Meta about $10 billion in lost revenue in 2022, which he called “a pretty significant headwind for our business.”
Most analysts were pretty shocked by the revenue impact, but kept as much optimism as they could for the company, maintaining their ratings on the stock but slashing their 12-month price targets by nearly $100. For many, their advice to investors was to ride out the storm, buy the stock at its new low-point and reap the benefits later.
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MoffettNathanson media analyst Michael Nathanson, in a research report entitled “Facebook: The Beginning of the End?” maintained his “buy” rating on the stock but dropped his price target from $420 to $380 per share. Evercore ISI Group analyst Mark Mahaney kept his “outperform” rating but slashed his price target to $350 from $430 per share, while Bernstein tech analyst Mark Shmulik maintained his “outperform” rating on the stock but dropped his price target from $400 to $350 per share.
“There are days in this job that suck. Today is one of those days,” Shmulik wrote in a note to clients after Meta released its results. Shmulik noted that most analysts severely underestimated the impact of Apple’s decision to let iPhone and iPad users opt in or out of the identifiers for advertisers (IDFA) that apps use to track movement through the web and target ads accordingly. When users opt out, it makes those ads a lot less valuable.
While Shmulik and other analysts believe Facebook will eventually figure out a workaround to the IDFA, management didn’t help things during the earnings conference call by “striking a negative tone around the duration and cost (~$10B on ’22 revenues) of any potential long term fixes,” the Bernstein analyst wrote.
Nathanson, who has been a big believer that Facebook would exceed ad forecasts in the past, reduced his Q1 revenue estimate by $2 billion and his full-year 2022 revenue predictions by $12 billion, or 8%. Although he said Meta’s Q4 results were in line with most estimates, its Q1 guidance was “incredibly weak” and was a “headline grabber and not in a good way.”
Still, other analysts were optimistic of Facebook’s resilience, and saw the low stock price as a Netflix-like inflection point, referring to the streaming giant’s recent stock drop. In his note, Evercore‘s Mahaney said that Meta “could well be dead money for several months,” but remained a buyer of the stock because it is trading close to its 2018 trough multiple of 17 times cash flow, which could limit downside and because he believes the company’s new Q1 revenue guidance suggests that revenue trends are stabilizing.
Mahaney also is confident that Facebook’s Reels — its short-form video answer to TikTok — will succeed, and that its macro challenges are temporary.
“TikTok is a real issue, but primarily for Instagram, and much less so for Blue, WhatsApp, FB Messenger, FB Marketplace, etc.,” Mahaney wrote, adding that he still believes Meta has a compelling long-term business model.
“Meta Platforms has a robust combination of revenue growth (17% CAGR ‘21E-‘24E) and profitability (~40% GAAP Operating margins and 50%+ EBITDA margins in ‘21),” Mahaney wrote. “Their core Family of Apps operating margins of near 50% in FY21, supports the significant investment in Reality Labs. The FCF generation has been equally impressive: $39B in FY21. And this has allowed them to execute sizeable share buybacks ($40B+ in ‘21) that we believe are sustainable going forwards.” ■
