Meta (NASDAQ:META) Misses Q2 Sales Targets, Stock Drops On Weak Guidance

Jabin Bastian /
2022/07/27 4:14 pm EDT

Social network operator Meta Platforms (NASDAQ: FB) missed analyst expectations in Q2 FY2022 quarter, with revenue flat year on year at $28.8 billion. Guidance for the next quarter also missed analyst expectations with revenues guided to $27.2 billion at the midpoint, or 10.3% below analyst estimates. Meta made a GAAP profit of $6.68 billion, down on its profit of $10.3 billion, in the same quarter last year.

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Meta (META) Q2 FY2022 Highlights:

  • Revenue: $28.8 billion vs analyst estimates of $28.9 billion (small miss)
  • EPS (GAAP): $2.46 by $0.09
  • Revenue guidance for Q3 2022 is $27.2 billion at the midpoint, below analyst estimates of $30.3 billion
  • Free cash flow of $4.45 billion, down 47.8% from previous quarter
  • Gross Margin (GAAP): 81.9%, in line with same quarter last year
  • Family Monthly Active People: 3.65 billion, up 140 million year on year

Famously founded by Mark Zuckerberg in his Harvard dorm, Meta Platforms (NASDAQ: FB) operates a collection of the largest social networks in the world - Facebook, Instagram, WhatsApp, and Messenger, along with its metaverse focused Facebook Reality Labs.

Businesses must meet their customers where they are, which over the past decade has come to mean on social networks. In 2020, users spent over 2.5 hours a day on social networks, a figure that has increased every year since measurement began. As a result, businesses continue to shift their advertising and marketing dollars online.

Sales Growth

Meta's revenue growth over the last three years has been strong, averaging 25% annually. The initial impact of the pandemic was positive for Meta's revenue, pulling forward sales, but quarterly revenue subsequently normalized, year over year.

Meta Total Revenue

This quarter, Meta reported a rather lacklustre 0.87% year on year revenue decline, missing analyst expectations.

Meta is guiding for revenue to decline next quarter 6.06% year on year to $27.2 billion, a further deceleration on the 35.1% year-over-year decrease in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 10.1% over the next twelve months.

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Usage Growth

As a social network, Meta can generate revenue growth by increasing user numbers, and by charging more for the ads each user is exposed to.

Over the last two years the number of Meta's monthly active users, a key usage metric for the company, grew 10.7% annually to 3.65 billion users. This is decent growth for a consumer internet company.

Meta Family Monthly Active People

In Q2 the company added 140 million monthly active users, translating to a 3.98% growth year on year.

Key Takeaways from Meta's Q2 Results

With a market capitalization of $445 billion, more than $40.4 billion in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.

We struggled to find many strong positives in these results. On the other hand, it was less good to see that the revenue growth was quite weak and the revenue guidance for the next quarter missed analysts' expectations. Overall, it seems to us that this was a complicated quarter for Meta. The company is down 3.43% on the results and currently trades at $163.54 per share.

Meta may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.