Wallstreet darlings Meta reported earnings last week; shares are up 14% since the announcement, cheered on the back of consensus beats in both top and bottom line, along with an overly optimistic picture about its near future combined with lower headcount – labeled as the year of the “efficiency” in combination with more AI hype that is aimed at elevating the company towards its bright future.
However, its recent performance pales in comparison to the stocks’ jaw-dropping 98.8% return since the start of the year, outrunning by miles, in the same manner that Usain Bolt did to his competitors, indices such as the NASDAQ 100 and S&P 500, which recorded only 19.87% and 7.29% returns for the same period, respectively.
Many market commentators outweighed the positive portion of META’s quarterly results at the expense of the negative side, preventing existing and potential investors from forming a well-rounded, educated decision about the company’s future. Namely that:
· Declining revenues which are a product of falling revenue per user along with MaU quite likely reaching a ceiling and a potential decline from here on
· Company’s Flop on AI, which not only bleeds billion, but even FB’s programmers have no interest in
Let’s zoom out the bigger picture for Meta; if we annualize its latest quarterly result, the company will continue with its declining revenues and reach $114.58 bn of sales in 2023, down from an all-time high peak of $117.9 bn in 2021, on the back of pulled-forward turnover as most of its users consumed unimaginable quantities of online content, during the covid-19 pandemic. That caused the average revenue per user (ARPU) to skyrocket. However, that period proved to be short-lived. The company’s earnings have entered the “decline phase” after years of expansion.
The covid period distorted the picture for META, which thought that the past growth would translate into the future. There was a big spike during the pandemic, but things started to normalize in the post-lockdown period.
In the post-pandemic period, people are no longer locked in. They chose to experience life, unsurprisingly. As a result, user growth has reached a wall. Monthly active users are incrementally growing, unable to break the magical barrier of 3 billion or a whopping 38% of the world population!
Zuckerberg’s company reached a staggering +32% YoY growth rate in its ARPU, a considerable spike thanks to the Covid-19 pandemic, which turned out to be unsustainable.
Similarly, to the revenue timeline, the company ARPU is contracting after growing every year since its IPO in 2008, as it was down 3% in 2022 and is expected to mirror that performance in 2023, as people spend less time on the social media platform.
The AI flop, also known as “Reality Labs” or how the “Metaverse,” is not playing out as expected and is bleeding investors’ money. According to some reports, Meta has invested over $100 bn on metaverse research and development to date, $15 bn in the past year alone – with apparently little to show for it. Zuckerberg’s newfound metaverse obsession could be seen as a preemptive virtual land grabs for what is generally agreed to be the future of the internet.
The irony here is so great that not even META’s employees are using it – an internal company memo reported by Time.com said: “The simple truth is, if we don’t love it, how can we expect our users to love it?”
If the metaverse does not work, “cutting corners,” also known as “efficiencies,” will.
Pre-pandemic, especially the pandemic period, brought unusually high demand for META’s products, but that growth rate was not sustainable in the post-pandemic world.
The company has drastically lowered its headcount to please shareholders and reduced its swollen operating expenses, mainly from a spike in its headcount, to protect its dropping profitability margins from further contractions.
Despite all the bearish comments, the company does not look expensive on a relative basis, which trades at nearly 20x the next twelve months’ earnings.
However, to justify that growth premium, the company needs to deliver and possibly scrap its AI division altogether. The recently falling P/E multiple reflects that investors are somewhat skeptical about the company’s future growth prospects, and as the growth narrative turns south, the next in line to fall might be its price.
Remember, price is what you pay, but value is what you get, and the market is only sometimes very efficient at equating the two variables.
Violeta è entrata a far parte di Leverage Shares nel settembre 2022. È responsabile dello svolgimento di analisi tecniche e ricerche macroeconomiche ed azionarie, fornendo pregiate informazioni per aiutare a definire le strategie di investimento per i clienti.
Prima di cominciare con LS, Violeta ha lavorato presso diverse società di investimento di alto profilo in Australia, come Tollhurst e Morgans Financial, dove ha trascorso gli ultimi 12 anni della sua carriera.
Violeta è un tecnico di mercato certificato dall’Australian Technical Analysts Association e ha conseguito un diploma post-laurea in finanza applicata e investimenti presso Kaplan Professional (FINSIA), Australia, dove è stata docente per diversi anni.
Julian è entrato a far parte di Leverage Shares nel 2018 come parte della prima espansione della società in Europa orientale. È responsabile della progettazione di strategie di marketing e della promozione della notorietà del marchio.
Oktay è entrato a far parte di Leverage Shares alla fine del 2019. È responsabile della crescita aziendale, mantenendo relazioni chiave e sviluppando attività di vendita nei mercati di lingua inglese.
È entrato in LS da UniCredit, dove è stato responsabile delle relazioni aziendali per le multinazionali. La sua precedente esperienza è in finanza aziendale e amministrazione di fondi in società come IBM Bulgaria e DeGiro / FundShare.
Oktay ha conseguito una laurea in Finanza e contabilità ed un certificato post-laurea in Imprenditoria presso il Babson College. Ha ottenuto anche la certificazione CFA.