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Meta Earnings: Brace Yourself for Another Blow

Meta's earnings report is just around the corner. Is another bloodbath in the works?

On April 27, after the market closes, Meta  (FB) -  — the company formerly known as Facebook — will release its first-quarter (Q1) results. After the last bloodbath we saw in Meta's stock last quarter, investors short brace themselves for another blow.

Figure 1: Meta Earnings: Brace Yourself for Another Blow

Figure 1: Meta Earnings: Brace Yourself for Another Blow

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Can It Get Worse for Meta?

Last quarter, Meta reported a decline in the number of its daily active users for the first time in its history:

Figure 2: Facebook daily active users (DAUs).

Figure 2: Facebook daily active users (DAUs).

Following Meta's last quarterly earnings release, shares fell by more than 26%.

For Q1, Meta has reported that it expects revenues to come in around $27 billion and $29 billion, which would represent a 3% to 11% year-over-year increase.

this Wall Street is too conservative on Meta's Q1 and underestimates the long-term monetization capacity of billion-user products such as Messenger and WhatsApp. The analyst also thinks ad revenue should be in line with Q1 projections.

is already preparing for the worst. He believes that the potential for a sequential decline in daily active users could damage Meta shares.

Has Big Tech Reached Its Peak?

Possibly the biggest consideration when it comes to investing in Meta stock is whether we're seeing a slowdown in Big Tech stocks as a whole. They may well have peaked after several years of accelerated growth.

Another Big Tech company, Netflix  (NFLX) -  recently delivered disappointing Q1 subscriber metrics. Its shares tanked by as much as 40% during the following trading session, and NFLX's market cap lost $60 billion along the way.

Tech and other growth stocks are naturally more sensitive to inflation, rising interest rates, and increased labor and operational costs — all of which are going on right now.

While the S&P 500 is down 22% year to date, Meta is down 45%, Amazon  (AMZN) -  is down 13%, Microsoft  (MSFT) -  is down 18%, Netflix is down over 64%, and Alphabet GOOGL is down 17%. Apple  (AAPL) -  has fared better; it's down only 9%.

However, experts see Big Tech's earnings as a mixed bag. TECHnalysis' Bob O'Donnell believes that some big players will continue to show strong performances.

Apple should continue its consistent performance, led by the success of the iPhone, while cloud computing giants Amazon, Microsoft, and Alphabet should continue to show good results.

On the other hand, Meta and Netflix should continue to be the ugly duckling of Big Tech. Unlike their peers, they do not have diversified businesses to turn to for new growth trends.

The Bottom Line

Last quarter, Meta's stock plunged because it was the first time the company had ever recorded a drop in new users. So if it happens again, the impact should be less — especially because the market is already anticipating a drop in user numbers.

Although Meta continues to have a robust business, market leadership, and plenty of cash for future investments, it's still totally dependent on advertising.

Its biggest challenge will be to accelerate new ways to beat the competition — mainly TikTok and Snap. The company hopes to do this with its Reels video feature.

Until Meta proves otherwise, the slowdown in demand should continue in coming quarters, and this should bring strong selling pressure on FB shares. Any optimistic view of Meta would be for the long term.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)