Meta Platforms (FB) decides to slow down on investments amid near-term challenges

Shares of Meta Platforms Inc. (NASDAQ: FB) soared 17% on Thursday, despite the company reporting mixed results for the first quarter of 2022 a day ago. While earnings beat estimates, revenue fell short of expectations. The stock has dropped 38% year-to-date. As the pandemic-fueled boom wanes off and new challenges set in, the company has decided to go slow on some of the investments it had planned earlier.

Mixed results

Total revenues grew 7% year-over-year to $27.9 billion but fell short of estimates. EPS fell 18% YoY to $2.72 but surpassed expectations.

Headwinds

On its quarterly conference call, Meta outlined a number of challenges that it is facing in its business. These include ones that are both specific to its industry as well as broader ones. Industry-specific challenges like the signal loss caused by Apple’s (NASDAQ: AAPL) iOS changes present a meaningful headwind to Meta but the company believes it can navigate this through the right technology investments.

The headwinds caused by broader macro trends such as the pandemic-driven boom in ecommerce cooling off as well as the Russia-Ukraine war are also impacting the social media giant’s business. Meta has been blocked in Russia and the company stopped accepting ads from Russian advertisers globally.

In addition to these broader headwinds, Meta faces a company-specific challenge pertaining to its transition to short-form video, which provides lesser monetization benefits. The company had initiated a number of multi-year projects to accelerate some of its long-term investments in AI infrastructure, Reality Labs and business platform but it has now decided to slow down on these investments due to the current growth levels of its business.

User growth and engagement

Meta estimates that approx. 2.9 billion people used at least one of its Family of Apps on a daily basis in March and that around 3.6 billion people used at least one on a monthly basis. Facebook’s daily active users (DAUs) grew 4% year-over-year to 1.96 billion during Q1 while monthly active users (MAUs) grew 3% YoY to 2.94 billion.

On a sequential basis, both DAUs and MAUs inched up slightly in the US & Canada. While the Asia-Pacific and Rest of World regions saw meaningful increases, these metrics saw a drop in Europe. This decline was mainly caused by the loss of users in Russia after Facebook was blocked in that country. This trend is expected to continue in the second quarter thereby likely leading to global MAUs being flat to down sequentially.

Outlook

For the second quarter of 2022, Meta expects total revenue to range between $28-30 billion. For the full year of 2022, total expenses are estimated to be $87-92 billion, which is lower than the previous outlook of $90-95 billion. Capex for the year is estimated to range between $29-34 billion.

Click here to read the full transcript of Meta Platforms’ Q1 2022 earnings conference call