Three Key Questions About Meta Platforms (META) Earnings in April 2023
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Meta Platforms (NASDAQ: META) reported better-than-expected earnings for Q1 2023 after the market close on Wednesday, April 26, 2023. What happened during the release and earnings call, and what are the questions we’re focusing on?
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How are Facebook and Instagram revenues trending at META?
META delivered $28.6B in sales in Q1, driven by the better-than-expected performance of Facebook and Instagram. Ad revenues outperformed for the U.S. and the Rest of the World. For APAC and EMEA, performance was in-line with analyst expectations.
META guided to $29.5-32B in sales for Q2, which also exceeded the consensus estimate of $29B. Since the release, META has seen upward revisions to the 2023 estimate of $119B to $124B, driven by a 6% upward revision of Facebook’s core revenue. Income from the Family of Apps has also been upwardly revised by 11% from $49.7B to $55.2B.
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How is META’s efficiency focus impacting the outlook?
In Q1, META delivered $7.2B in operating profit, driven by a strong $11.2B in the Family of Apps and diluted by a $-4B loss in Reality Labs, which was in line with expectations.
META’s operating expenses guidance came down to $86-90B for 2023 from its previous $89-95B. META highlighted that restructuring costs for 2023 will be $3-5B, and only $1B has been recognized in Q1, with the bulk of charges going to Family of Apps. Going forward, there may be a higher concentration of both costs and restructuring charges coming from Reality Labs, as the company absorbs the full impact of efficiency efforts. Will the remaining $2-4B in restructuring costs be skewed toward Reality Labs?
With sales guidance for Q2 ahead of expectations, the previously expected $33B operating profit for 2023 was revised up by analysts post-quarter to $39B, and the margin from 27% to 30%, driven by increased profitability across the business. In 2019, META generated a 34% operating profit margin. Could AI and other efficiency efforts drive margins back to 34% levels by the end of 2024?
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Where will CapEx as a percentage of sales trend?
META reiterated their 2023 capital expenditures (CapEx) of $30-33B. In Q1, they had $7B in CapEx, suggesting ~$8B/quarter for the remainder of the year. At the Morgan Stanley TMT conference in early March, META noted that their CapEx/sales ratio would be coming down, and based on Q1’s unchanged CapEx, it further suggests that revenues may exceed expectations.
