fbpx

Education Series: Single-Stock ETPs

Meta Platforms Might Have a Revenue Problem

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

Websim is the retail division of Intermonte, the primary intermediary of the Italian stock exchange for institutional investors. Leverage Shares often features in its speculative analysis based on macros/fundamentals. However, the information is published in Italian. To provide better information for our non-Italian investors, we bring to you a quick translation of the analysis they present to Italian retail investors. To ensure rapid delivery, text in the charts will not be translated. The views expressed here are of Websim. Leverage Shares in no way endorses these views. If you are unsure about the suitability of an investment, please seek financial advice. View the original at

Meta is expected to announce its quarterly earnings on the 26th of October. Given that company CEO Mark Zuckerberg is essentially the face of its immersive social connectivity endeavour, the stock would theoretically be highly sensitive to news and announcements about advances made in this space. However, as equity market performance in the Year to Date (YTD) has shown, “hype” doesn’t carry very far.

What the company does have, instead, are some strong fundamental trends in revenues from its existing business which brings with it specific challenges.

Revenue Segments and Trends

The company’s quarterly financial statements indicate that over 98% of its revenues typically comes from advertising. Applying a dual-level “heat map” schema on quarterly revenues by region and “Daily Active User” (DAU) metrics along with total quarter-on-quarter (QoQ) changes reveal some very interesting trends:

  1. While the Asia-Pacific and the “rest of the world” (ROW) make up over 73-76% of the company’s DAUs, the bulk of advertising revenues (in the 68-76% range) come from European, US and Canadian users on the platform.
  2. Overall reported DAUs for each quarter indicates that user growth is more or less dead in the water.

The second point has a “catch” of sorts: the company states that the likes of DAU do not include users on Instagram, WhatsApp, or any other product – unless said product led to usage of the Facebook platform.

As such, the company doesn’t offer any significant quanta of data on other apps beyond a couple of statements on occasion. But other sources do have a number of estimates. As it turns out, it’s Facebook subsidiary – and standalone app – Instagram that has been raking in users and is currently en route to having more than 2.3 billion users:

Like Facebook, Instagram had a big drop in revenues circa Q1 this year, from which it staged a rather decent recovery in the subsequent quarter:

Instagram’s estimated share of the company’s total revenue has been skyrocketing since 2015. However, when contextualized with the number of users, its share of revenue has been running stable at 0.02% per million users since 2019.

Unlike popular conceptions about Facebook being a “boomer” hangout and Instagram being more popular with the “Gen Z” crowd, the estimates by third parties (with respect to Instagram) and the company itself (with respect to the Facebook platform) indicate that both apps’ main user demographic is predominantly in the 18-44 age range. As with Facebook, while user growth is strong in the Asia-Pacific, Instagram’s revenues are disproportionately attributable to the Western Hemisphere.

These facts should drive home a couple of facts about the company’s financial prospects. Firstly, while much ado is generated about the “Metaverse”, it accounts for very little of the company’s revenues in the present (and possibly for quite some time in the near future). Since this next-generation concept is relatively early technology without nearly as much traction as the company’s existing networks, it’s also possible that there will be numerous competitors or alternatives upcoming, some of which are likely in “stealth mode” currently.

Secondly, the company’s captive platform audience and disproportionate revenue breakdown make it heavily dependent on advertising sales in the Western Hemisphere. Like Apple – which was discussed in an article earlier this month – the Meta story is very much an “American” story (or, perhaps broadly, a “Western” one).

Given the importance of ad spending for the company’s financial health, a study of the US advertising landscape (in particular) would be helpful. This isn’t necessarily a straightforward process.

Estimating Ad Spending

There is no single tracker for monitoring ad spending by thousands of companies and brands. However, what can be seen as becoming more and more apparent is that digital ad spending is here to stay. Some sources estimate that the digital domain will stabilize at a 67% share of all ad spending in the U.S over the course of the decade.

As ad spending proliferates into the digital domain, year-on-year growth on digital ad spending is estimated to trend toward a “flattening” over the course of the decade.

Other estimates indicate that the company will be entering a steady state of sorts with a roughly 23-25% share of US digital ad revenues and Instagram becoming an increasingly significant contributor.

It bears noting that, historically, ad spending can be made a function of expected consumption that, in turn, is related to individual disposable income. As a previous article that discussed trends in US wages indicated, US individual earnings (and disposable incomes) are under significant pressure.

This has been apparent with the S&P 500 Advertising Sub-Industry Index largely following trends in the larger S&P 500 with a near-identical decline in levels:

The company’s quarterly revenues have typically shown pretty strong trends in seasonality but given that overall consumption of goods and services is generally trending downwards, a pullback on ad spending is being expected.

Price Ratio Trends

In terms of price ratios of the broader market versus the stock itself, the measuring the median Price-to-Earnings (PE Ratio) trajectories of both the stock and the S&P 500 for each calendar year – with correlation measures cross-layered as a form of “goodness of fit” – indicate that the stock’s trajectory is beginning to mirror that of the broader market.

This is essentially a return to 2019 for the stock’s performance. However, it bears remembering that 2019 shouldn’t be considered a “high water mark” for the stock: the PE Ratio for both the index and stock show increasingly stronger correlation in more recent periods.

In Conclusion

As with Apple, there is an increasing correlation with the broader market which, in turn, has a rather bearish outlook. As with Apple, the company is dependent largely on the Western Hemisphere. However, unlike Apple, there is no “brand equity” perceived by the user base in the company’s products. Current economic conditions would likely slow down the evolution of new modes of social networking and commerce. However, more data is needed to assess as to whether the company’s early forays in this new space will give it the type of advantage it had in social media.

In terms of earnings, it’s possible that the company might have taken a hit in Q3 in terms of accruing ad revenues. However, given that the digital domain is already the dominant choice for advertorial placement, the company’s decades-long focus on building a captive audience space isn’t for naught. The larger question to be asked is: in times of depleting revenues and slowing growth, would companies that generally use the platforms for advertising continue to aggressively campaign for their products or would they cut back on spending?

In this matter, your guess is as good as ours.

Exchange-Traded Products (ETPs) offer substantial potential to gain magnified exposure with potential losses limited to only the invested amount and no further. Learn more about Exchange Traded Products providing exposure on either the upside or the downside to the S&P 500, and the upside or the downside to Meta’s stock.

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

Related Posts

Search

Search
Generic filters
Exact matches only
Search in title
Search in content
Search in excerpt
Filter by Categories
AAPL
AMD
AMZN
BA
BABA
BARC
BP
C
CRM
Deutsche Videos
Education
ETPs
FB
Featured
GOOG
GS
HSBC
HSBC
In the press
Insight
Insights
JPM
Market Insights
MSFT
MU
NFLX
NVDA
PYPL
RDS
Research
Research
SHOP
SQ
TSLA
TWTR
UBER
Uncategorized
Uncategorized
Uncategorized
V
VOD
Websim
ZM
Search
Generic filters
Exact matches only
Search in title
Search in content
Search in excerpt
Filter by Categories
AAPL
AMD
AMZN
BA
BABA
BARC
BP
C
CRM
Deutsche Videos
Education
ETPs
FB
Featured
GOOG
GS
HSBC
HSBC
In the press
Insight
Insights
JPM
Market Insights
MSFT
MU
NFLX
NVDA
PYPL
RDS
Research
Research
SHOP
SQ
TSLA
TWTR
UBER
Uncategorized
Uncategorized
Uncategorized
V
VOD
Websim
ZM

Sandeep Rao

Research

Sandeep joined Leverage Shares in September 2020. He leads research on existing and new product lines, asset classes, and strategies, with special emphasis on analysis of recent events and developments.

Sandeep has longstanding experience with financial markets. Starting with a Chicago-based hedge fund as a financial engineer, his career has spanned a variety of domains and organizations over a course of 8 years – from Barclays Capital’s Prime Services Division to (most recently) Nasdaq’s Index Research Team.

Sandeep holds an M.S. in Finance as well as an MBA from Illinois Institute of Technology Chicago.

Violeta Todorova

Senior Research

Violeta joined Leverage Shares in September 2022. She is responsible for conducting technical analysis, macro and equity research, providing valuable insights to help shape investment strategies for clients.

Prior to joining LS, Violeta worked at several high-profile investment firms in Australia, such as Tollhurst and Morgans Financial where she spent the past 12 years of her career.

Violeta is a certified market technician from the Australian Technical Analysts Association and holds a Post Graduate Diploma of Applied Finance and Investment from Kaplan Professional (FINSIA), Australia, where she was a lecturer for a number of years.

Julian Manoilov

Senior Analyst

Julian joined Leverage Shares in 2018 as part of the company’s premier expansion in Eastern Europe. He is responsible for web content and raising brand awareness.

Julian has been academically involved with economics, psychology, sociology, European politics & linguistics. He has experience in business development and marketing through business ventures of his own.

For Julian, Leverage Shares is an innovator in the field of finance & fintech, and he always looks forward with excitement to share the next big news with investors in the UK & Europe.

Oktay Kavrak

Director

Oktay joined Leverage Shares in late 2019. He is responsible for driving business growth by maintaining key relationships and developing sales activity across English-speaking markets.

He joined LS from UniCredit, where he was a corporate relationship manager for multinationals. His previous experience is in corporate finance and fund administration at firms like IBM Bulgaria and DeGiro / FundShare.

Oktay holds a BA in Finance & Accounting and a post-graduate certificate in Entrepreneurship from Babson College. He is also a CFA charterholder.

Welcome to Leverage Shares

Terms and Conditions

Notice

If you are not classified as an institutional investor, you will be categorised as a private/retail investor. At this time, we cannot send communications directly to private/retail investors. You are welcome to view the contents of this website.

If you are an ‘Institutional investor’, you affirm either that you are a Per Se Professional Client, or that you wish to be treated as an Eligible Counterparty Client, both as defined under the Markets in Financial Instruments Directive, or an equivalent in a jurisdiction outside the European Economic Area.

Risk Warnings

The value of an investment in ETPs may go down as well as up and past performance is not a reliable indicator of future performance. Trading in ETPs may not be suitable for all types of investor as they carry a high degree of risk. You may lose all of your initial investment. Only speculate with money you can afford to lose. Changes in exchange rates may also cause your investment to go up or down in value. Tax laws may be subject to change. Please ensure that you fully understand the risks involved. If in any doubt, please seek independent financial advice. Investors should refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuer.

This website is provided for your general information only and does not constitute investment advice or an offer to sell or the solicitation of an offer to buy any investment.

Nothing on this website is advice on the merits of any product or investment, nothing constitutes investment, legal, tax or any other advice nor is it to be relied on in making an investment decision. Prospective investors should obtain independent investment advice and inform themselves as to applicable legal requirements, exchange control regulations and taxes in their jurisdiction.

This website complies with the regulatory requirements of the United Kingdom. There may be laws in your country of nationality or residence or in the country from which you access this website which restrict the extent to which the website may be made available to you.

United States Visitors

The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions.

Persons accessing this website in the European Economic Area

Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the “Advisers Act”).

Exclusion of Liability

Certain documents made available on the website have been prepared and issued by persons other than Leverage Shares Management Company. This includes any Prospectus document. Leverage Shares Management Company is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, Leverage Shares Management Company shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes no guarantee as to the accuracy of any information or content on the website. The description of any ETP Security referred to in this website is a general one. The terms and conditions applicable to investors will be set out in the Prospectus, available on the website and should be read prior to making any investment.

Leverage Investment

Leverage Shares exchange-traded products (ETPs) provide leveraged exposure and are only suitable for experienced investors with knowledge of the risks and potential benefits of leveraged investment strategies.

Cookies

Leverage Shares Management Company may collect data about your computer, including, where available, your IP address, operating system and browser type, for system administration and other similar purposes (click here for more information). These are statistical data about users’ browsing actions and patterns, and they do not identify any individual user of the website. This is achieved by the use of cookies. A cookie is a small file of letters and numbers that is put on your computer if you agree to accept it. By clicking ‘I agree’ below, you are consenting to the use of cookies as described here. These cookies allow you to be distinguished from other users of the website, which helps Leverage Shares Company provide you with a better experience when you browse the website and also allows the website to be improved from time to time. Please note that you can adjust your browser settings to delete or block cookies, but you may not be able to access parts of our website without them.

This website is maintained by Leverage Shares Management Company, which is a limited liability company and is incorporated in Ireland with registered offices at 2 Grand Canal Square, Grand Canal Harbour, Dublin 2. 

By clicking you agree to the Terms and Conditions displayed.