Meta prepares to report earnings amid ad revenue, cost-cutting pressures

Meta (META) is gearing up to report its third-quarter earnings after the closing bell on Wednesday.

Here’s what Wall Street’s expecting from Facebook’s parent company, as compiled by Bloomberg:

Returned: $27.4 billion expected

Earnings Per Share (EPS): $1.88 expected

Facebook Daily Active Users (DAUs): 1.86 billion expected

The digital advertising slowdown had been top-of-mind for Meta and Big Tech overall heading into this week’s earnings. On Tuesday, Google parent Alphabet (GOOG, GOOGL) reported a substantial miss on YouTube ad revenue. Meta is coming off a rough second quarter, as the company missed analysts’ expectations on both earnings per share and revenue. These weren’t just any misses though — they corresponded with the tech giant’s first-ever revenue drop.

Things haven’t improved a whole lot since. Meta Connect, the company’s annual flagship event, outlined a direction for Meta that included enterprise partnerships with Microsoft (MSFT) and Accenture (ACN). Wall Street isn’t yet convinced, it seems. Atlantic Equities even downgraded the company this month and a stock drop followed.

AUSTIN, TEXAS – MARCH 15: Mark Zuckerberg, via video, speaks at Into the Metaverse: Creators, Commerce and Connection during the 2022 SXSW Conference and Festivals at Austin Convention Center on March 15, 2022 in Austin, Texas. (Photo by Samantha Burkardt/Getty Images for SXSW)

So, what are analysts looking for? Some are concerned about daily active users, fearing that growth could type. The company’s ad business also remains under substantial pressure, not only due to major competition from the likes of TikTok, but in the aftermath of Apple’s (AAPL) privacy changes. That shakeup, called App Tracking Transparency, is expected to cut $10 billion out of Meta’s revenue this year alone.

Meta is down about 58% year-to-date as of market close Tuesday.

‘Meta needs to get its mojo back’

It’s a tense moment across the board for Meta. Ex-COO Sheryl Sandberg left the company for good just a few weeks ago, while Meta has been cutting costs as it tries to manage its pivot into VR and metaverse applications. This week, shareholder Brad Gerstner of Altimeter Capital sent a withering open letter to Meta CEO Mark Zuckerberg, criticizing the extent to which the company has gone all-in on its metaverse investment.

“Meta’s investment in the metaverse… has gotten the most attention and has led to much confusion,” Gerstner wrote on Oct. 24. “Perhaps it was the re-naming of the company to Meta that caused the world to conclude that you were spending 100% of your time on Reality Labs instead of AI or the core business. Whatever the reason, that is certainly the perception.”

There are some possible bright spots on the horizon. For instance, the Meta Quest Pro is now available, which the company is touting as its best — and most expensive — VR headset to date. Gerstner also expressed optimism about Meta’s social media business.

“Meta’s core business is one of the largest and most profitable in the world with over $45 billion in operating profits last year alone,” he said. “Moreover, Meta has industry-leading capabilities in key future technologies like artificial intelligence and immersive 3d that will help drive new products and future growth.”

Nevertheless, the skepticism that looms over Meta, from both Wall Street and investors, has long been in the works.

“Meta needs to get its mojo back,” Gerstner wrote. “Meta needs to re-build confidence with investors, employees and the tech community in order to attract, inspire, and retain the best people in the world. In short, Meta needs to get fit and focused.”

Allie Garfinkle is a Senior Tech Reporter at Yahoo Finance. Follow her on Twitter at @agarfinks.

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