For some prelude to this, do check out this article which covers Meta’s results for 4Q2021. Here we are once again with Meta’s earnings in the headlines. From ..
We are now seeing …
Needless to say, Meta is once again back in the headlines and this time on a much better note. What puzzles me the most is that I’ve looked at their earnings in detail and to be honest, Meta didn’t exactly beat earnings. In fact, their earnings were very much on par with expectations. As I continue to make sense of this recent earnings call, I’ll be analysing some of the key numbers which investors should look at and from there, I’ll be sharing the one KEY METRIC that investors seem to care more than anything else when it comes to social media stocks!
Put on your…Oculus?? and lets jump right into it!
Facebook’s (Meta Platforms) 1Q2022 Financial Highlights
1. Key Metrics – EPS & Revenue
As always, we look at the two metrics which investors look at before anything else and that’s revenue and EPS. In terms of revenue, it does appear to be in line with their guidance from last quarter with it coming in at $27.91 billion. Nothing worthy of note there.
They did perform better with their EPS which came in about 8% higher than estimations. This indicates that the company is indeed making more money for each share of the stock. A higher EPS is generally considered to be a good thing.
2. Net Income
Difficult to find good news on the front of Net Income as even though results came in higher than estimates, if we zoom out and look at the numbers on a quarter on quarter basis, we are looking at an almost 25% DECREASE in net income as compared to 4Q2021. This has largely been disregarded in the news and for some reason I find it to be more concerning than anything else. For a company to shave off over a quarter of its net income does raise some red flags.
Interim thoughts
It is evident at this point, based on the metrics above, that this rally isn’t really justified. It is clear that the only reason investors are optimistic at this point is because the numbers more or less either met expectations or marginally beat them. This is pursuant to how the bar was set so low after their 4Q2021 results that IF this earnings call came in any worst, Meta fate may have been similar to that of Teladoc.
Make no mistake, I am indeed a Meta bull and I do hold shares in this company but based on the numbers above, I’m just “heaving” a sigh of relief that “luckily” things didn’t get worst.
Amidst these results, there appears to be one key metric which could be the cause of this rally. Though I can’t conclude that this rally has been caused by this one metric alone, at the very least it does seem to have contributed to it.
The most important metric to watch for Meta
Number of daily active Facebook users worldwide
In my previous article, I mentioned that the Q42021 sell-off was indeed an overaction as even though it was the first time in 18 years that Facebook’s daily active users (DAU) fell, the actual amount that it fell was almost insignificant. With this one sole metric actually improving quarter on quarter, it is likely that investors held DAU as the “deal-breaker” for this earnings call.
Check out the chart below from Statista which shows how insignificant the “MASSIVE DROP” of DAU last quarter was.
Concluding thoughts and what I’m doing
With this really I’ld say that the most exciting thing about being vested in the market is really to be able to ride this emotional rollercoaster that almost never stops. Time and time again, investors will be tested and at the end of the day, it’s really up to each individual investor to decide whats best for themselves.
In my opinion, I strongly believe that if Meta could increase their DAU despite geopolitical events then at the very least, they are indeed doing something right. Though I personally think that DAU isn’t the best metric to “judge” the valuations of their company, it is apparent that the market thinks it is and at the end of the day, its all about what the market thinks and not what I think.
At the time of writing, I am seeing Meta hold at this crucial $200 psychological support level and I sure do hope that this level holds. Those looking to make an entry should consider watching this level closely before taking another shot.
Once again, for anyone looking for a quick metaverse-related buck, bear in mind that Mark Zuckerberg has made it extremely clear that they will be burning lots of cash to develop this technology. We are still a long way from any realistic advancements in the metaverse.
That said, Mark has made his first move by opening the “first permanent Meta Store for customers to purchase its virtual reality products as a “gateway to the metaverse”. This to me is a tourist attraction on its own (like Disneyland) and I’ll spend a day in the shop if I were to travel to the US!
