Facebook’s Meta faces bleak holiday quarter, shares dive

(Reuters) – Facebook’s parent company Meta Platforms Inc (METAO) on Wednesday forecast a double-week holiday quarter and much larger losses from Metaverse investments next year, sending shares down 14%.

The forecast caused a decline of about $40 billion from the value of the stock market in the expanded trade. On top of the disappointing outlook, Meta is dealing with slowing global economic growth, competition from TikTok, concerns about massive spending on the Metaverse and the ever-present threat to regulation.

Meta expects to employ roughly the same number of employees in 2023 as it did at the end of September.

The parent company of Facebook and Instagram beat estimates for quarterly revenue, which fell 4% to $27.7 billion in the third quarter ended September 30, from $29 billion last year.

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That deepened a revenue slump that began in the previous quarter, when the company posted its first-ever revenue decline of 0.9%, but it was less steep than Wall Street had expected at 5.6%, according to IBES data from Refinitiv.

Reuters Graphics Reuters

It also published user growth numbers roughly in line with expectations, including an annual increase in monthly active users on the main Facebook app.

CEO Mark Zuckerberg said that a TikTok-like short video producer called Reels now reaches more than 140 billion plays across Facebook and Instagram, up 50% from six months ago.

Reels’ revenue across Facebook and Instagram is now $3 billion. He believes Reels is winning against rival TikTok with Reels retweeted over a billion times a day.

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Most worrisome was the company’s estimate that fourth-quarter revenue would be in the range of $30 billion to $32.5 billion, against analysts’ estimates of $32.2 billion, according to Refinitiv data.

Meta also forecast that its total expenditures for the full year of 2023 will be between $96 billion and $101 billion, up from revised estimates of total 2022 expenditures of $85 billion to $87 billion.

This includes fees estimated at $2.9 billion in 2022 and 2023 related to “enhancing the footprint of our office facilities.”

Total costs for the third quarter came in above estimates at $22.1 billion, compared to $18.6 billion a year earlier. Analysts expected about $20.6 billion.

“The worry for Meta is that this pain is likely to continue into 2023 as cost headwinds remain a real challenge and a strong dollar impact on outside earnings,” said Ben Baringer, equity research analyst at Quilter Cheviot.

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“With revenue falling at a time when costs have grown exponentially, modest user and impression growth simply won’t save you.”

Third-quarter net income fell to $4.40 billion, or $1.64 per share, from $9.19 billion, or $3.22 per share, a year earlier, its worst showing since 2019 and the fourth consecutive quarter of declining earnings.

Analysts expected earnings of $1.86 per share.

Additional reporting by Katie Paul in Palo Alto, California, and Shafie Mehta in Bengaluru; Additional reporting by Sheila Dang in Dallas. Editing by Anil de Silva, Peter Henderson and Lisa Schumaker

Our Standards: Thomson Reuters Trust Principles.

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