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Meta Platforms: ‘a company with amazing fundamentals, horrendous sentiment’

By:
on Oct 26, 2022
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  • Meta Platforms stock loses another 20% after Q3 earnings report.
  • Josh Brown reacts to its quarterly results on CNBC's "Closing Bell".
  • Shares of the Facebook-parent are now down about 70% YTD.

Meta Platforms Inc (NASDAQ: META), on Wednesday, said its profit was cut in half (versus last year) in the fiscal third quarter. Shares tanked another 20% in extended trading to their lowest price in over six years.

Headwinds this quarter included the same old inflation, supply chain issues, the Ukraine war, increased competition from TikTok, recession-driven hit to ad sales, Apple’s privacy changes, and, of course, “currency”.

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Josh Brown reacts to the quarterly results

Price per ad tanked 18% on average in Q3. Still, Josh Brown (Ritholtz Wealth Management) said on CNBC’s “Closing Bell: Overtime”:

Whatever you think is wrong with Facebook, a lot of the problems are fixable. The issue with this stock is the governance nightmare.

What he was referring to were unfounded investments (over $10 billion a year) that Meta Platforms continues to make in Reality Labs – its metaverse-focused segment.

Stop talking about video games that don’t actually exist. Stop focusing on projects with zero ROI expectations for ten years and focus on riding the ship. And then you can indulge the metaverse fantasies.

That, he believes, could unlock tremendous value in this stock that, at eleven times, is now as cheap as a mega cap gets. Brown added:

This is a company with amazing fundamentals, horrendous sentiment. It’s one of the cheapest stocks in its sector – dirt cheap. It’s lost over $700 billion in market cap. But I think this can be fixed.

Brad Gerstner letter to Meta Platforms

Earlier this week, Brad Gerstner – a major Meta shareholder wrote an open letter to the Nasdaq-listed firm asking for at least a 20% cut on headcount expense. To that end, CFO David Wehner said in the earnings press release:

We’re holding some teams flat in terms of headcount, shrinking others and investing in headcount growth only in our highest priorities. As a result, we expect headcount at the end of 2023 will be approximately in-line with Q3 2022 levels.

At the end of its third quarter, though, Meta had 87,314 employees – up 28% versus the same quarter last year, contributing to a 19% increase in costs and expenses.

Gerstner also suggested limiting metaverse-related investments to no more than $5.0 billion a year. An update on that front wasn’t available in the earnings report.

Notable figures in Meta Platforms’ Q3 report

  • Earned $4.39 billion versus the year-ago $9.2 billion
  • Per-share earnings fell sharply from $3.22 to $1.64
  • Total sales slipped 6.0% year-on-year to $27.17 billion
  • Consensus was $1.90 a share on $32.5 billion sales
  • DAUs went up 3.0% to 1.98 billion – in line with estimates

Revenue from Reality Labs came in at $285 million. Last week, we covered a story on internal documents that signalled Horizon Worlds – the company’s flagship metaverse was struggling to grow the number of monthly active users.

For the fiscal fourth quarter, Meta Platforms forecasts its revenue to fall between $30 billion and $32.5 billion. In comparison, analysts were at $32.3 billion. The multinational ended the quarter with $41.78 billion worth of cash, equivalents, and marketable securities.