Meta Platforms shares sink as 'ongoing challenges' shake investors' faith
Derick Hudson

Meta Platforms (NASDAQ:META) shares dropped as much as 8% Thursday after the Facebook parent posted its first year-over-year revenue decline as a public company and offered a weak outlook that prompted several analysts to note the "ongoing challenges" it is facing are not going away anytime soon.
On Wednesday, Meta (META) said it expects its third-quarter revenue to be in a range of $26B to $28.5B, while Wall Street analysts had earlier forecast sales of $28.94B for the quarter that ends in September.
That outlook only added to the negativity of Meta's (META) second-quarter results. The company reported sales of $28.82B, which slipped by 1% from the same period a year ago. Wall Street analysts had forecast the company's revenue to come in at $28.94B.
JP Morgan analyst Doug Anmuth, who has a neutral rating on Meta (META) said that macroeconomic factors were the main reason for Meta's weak outlook. However, Anmuth said Meta also saw the impact of both direct response ads and brands as a result of Apple's (AAPL) Identifier for Advertisers changes, something that has been going on for the past few quarters.
Anmuth lowered his price target on Meta's (META) stock to $200 a share from $225.
"A confluence of factors beyond macro is hitting much of the online ad market," Anmuth said, in a research note. According to Anmuth, those factors include Apple (AAPL) iOS privacy changes, TikTok competition, and foreign currency exchange rates on a reported basis.
One positive that was called out on the company's earnings call is Reels, its TikTok competitor. Reels is now tracking to generate more than $1B in annual revenue and though it is "partly cannibalistic," it is accretive to engagement "overall" on Facebook and Instagram, which Anmuth said, "helps to clarify a frequent topic of discussion [with] investors."
Credit Suisse analyst Stephen Ju, who rates Meta (META) shares at outperform, noted that Reels is still monetizing at a lower rate than Feeds and Stories, and while time spent has increased 30%, there are still questions about when it will fully turn the corner.
"With Metaâs shift to Reels content, the length of time it takes to close the monetization gap with Stories remains opened-ended although the optimist in us believes it should be similar/more rapid relative to the timeline of Feed to Stories given the velocity of content and advertisers already utilize the current ad format."
As a result of the ongoing macro weakness, Meta (META) has continued to adjust its operating expense guidance lower, now at $85B-$88B, down from a revised outlook of $87B-$92B.
Still, Ju lowered his revenue and earnings per share estimates for 2022, cutting them to $114.6B and $13.59 per share, down from a prior outlook of $119B and $13.74 a share, respectively, as "macro continues to weigh on advertiser demand" and certain areas where the company has greater exposure, including e-commerce and gaming, "are seeing a larger impact from slower campaign spend."
Morgan Stanley analyst Brian Nowak, who has an overweight rating and a $280-a-share price target on Meta (META), was encouraged by the continued discipline in spending, even as the company added roughly 5,000 new employees, which is more than expected. The company said it will slow headcount in the second-half and going forward, with larger impacts coming next year.
"We are encouraged by this incremental discipline and focus on [return on investment] and are hopeful META will emerge from the current difficult macro economic environment more disciplined and cash-flow generative," Nowak wrote following the results.
Despite the positive stance on costs, Nowak added that worries about ad growth still remain and will continue into 2023.
"The tactical question we will be stuck asking is...is Meta going to come in at the top end of the guide, or [at the] midpoint," Nowak wrote. "Only the macro data and time will tell."
On Wednesday, the Federal Trade Commission filed suit to block Meta Platforms (META) from acquiring Within, the creator of virtual reality apps including subscription fitness app Supernatural.