Why Shares of Meta Are Sinking After Earnings Report

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Bloomberg Apr 25 03:09 · 14.5k Views

Angelo Zino, CFRA Research senior equity analyst, reacts to Meta Platforms' first-quarter earnings report on Bloomberg Television. The Facebook parent reported revenue of $36.5 billion in the first quarter, an increase of more than 27% over the same period a year ago.

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Transcript

  • 00:00 You take a look at what the market thinks and it's not good.
  • 00:03 Mediashare is currently off by more than 12% after hours.
  • 00:07 What do you think is the big worry right now?
  • 00:09 Is it that revenue outlook or is it that big increase of course to CapEx and to expenditures?
  • 00:16 Yeah, I mean listen, I I think First off the the actual quarter looked pretty good
  • 00:20 in my view.
  • 00:20 I mean you kind of look at the the top line growing about 20 N of 27% that's that's a good number
  • 00:26 for them.
  • 00:26 They're probably going to be
  • 00:27 when you, when you kind of look at the, you know the rest of the the kind of competitors out there, they're probably by far going to outgrow everybody else
  • 00:34 on the digital ad side of things.
  • 00:35 But when you kind of look at the guide here for Q2 on the revenue side of things,
  • 00:39 definitely a little bit of a disappointment.
  • 00:40 But we do think the bigger disappointment is, is really on the OpEx numbers
  • 00:45 when you look at meta and why they've been able to kind of
  • 00:48 see the momentum, they've been able to see here over the last five to six quarters.
  • 00:52 A big reason for it has really kind of been able to,
  • 00:55 you know, keep those cost control controls really tight as they've seen an acceleration on the top line.
  • 01:00 Everybody already knew that growth was going to start to decelerate as we progress through the,
  • 01:05 you know, into Q2 and more importantly the second-half of the year on some of those more difficult comps.
  • 01:10 But
  • 01:11 the expectation I think from most was that they were going to keep those costs in check.
  • 01:15 And the fact that
  • 01:16 we're actually not seeing that I think is definitely spooking a lot of investors out there.
  • 01:21 Angela, it sounds like what you're saying is that
  • 01:22 the year of efficiency is over and that apparently traders don't like it.
  • 01:28 Yeah, I mean I'd go, I'd go as far as that.
  • 01:30 I mean it's definitely a disappointment I think for
  • 01:32 traders out there and
  • 01:35 you know it's, it's, it is definitely an end of an error in terms of kind of those, those cost controls that we've seen from the company.
  • 01:43 And the question now is
  • 01:45 what is the company going to stay on the call as far as the expectations going into
  • 01:50 not only into the second-half of the year, but more into 2025?
  • 01:53 What kind of commentary do they throw out there?
  • 01:55 Do they alleviate some of the concerns that we're seeing right now or not?
  • 01:59 I am curious, I mean, I know there's a big focus on on the costs and obviously the amount of CapEx
  • 02:04 and spending that they're going to do on AI.
  • 02:06 But but just talk a little bit about their traditional business, which is still just this defiant cash cow or the advertising business.
  • 02:14 We're heading it.
  • 02:14 We're in an election year already, which typically tends to benefit advertisers.
  • 02:18 There's been a lot of discussion about how a tick tock ban or divestiture might actually help some of the other social media platforms like metas platforms etcetera here.
  • 02:26 Do you see growth continuing in that ad space kind of unfettered?
  • 02:31 I mean we do.
  • 02:32 I mean we actually think AI if anything is kind of you know
  • 02:35 helped kind of the growth trajectory for the digital ad space out there.
  • 02:39 You're absolutely right.
  • 02:39 I mean
  • 02:40 meta is kind of in in many respects unlike other
  • 02:44 other the kind of mag seven names, you know they're they're more of A1 trick pony out there and that they're really kind of completely tethered
  • 02:51 to that digital ad space right now.
  • 02:53 Our view is it'll be able to kind of grow at a low double
  • 02:57 through 2025
  • 02:59 and you know AI will definitely kind of help them in that respect.
  • 03:03 We've seen share gain on meta side of things here in recent memory because they've been able to act
  • 03:09 and move
  • 03:10 so quickly with some of their AI initiatives out there kind of creating some of those great
  • 03:15 you know,
  • 03:16 ad creation tools
  • 03:17 for some of those advertisers out there that will continue to kind of gain momentum we think over the next couple of quarters that should that should help that their overall business and kind of the growth trajectory, the digital ad
  • 03:28 space.
  • 03:28 But
  • 03:29 you know
  • 03:30 I mean
  • 03:30 in all respect, I mean again the comps do get a lot more difficult as you get into the second-half of this year and of course as you get into 2025 and lack these type of numbers that you're seeing right now.
  • 03:41 I am curious so long term about the user base for meta.
  • 03:44 There's been a lot of hay made over
  • 03:46 I guess the age of some of their users now, particularly on Facebook, but even Instagram and I could just tell you with the the kids in my family, none of them mentioned any
  • 03:56 meta properties.
  • 03:56 It's all you know, Snap and Discord and
  • 03:59 you know somebody like TikTok and things like that here.
  • 04:02 Do they have
  • 04:03 a generation problem that they're going to have to confront at some point?
  • 04:06 You know, I I do think there's an issue to an extent from that side of things.
  • 04:10 I mean I think they've, they've been able to see some improvement with reels kind of here
  • 04:15 over the last kind of couple of quarters.
  • 04:17 And
  • 04:17 you know there are more and more I think individuals out there kind of you know
  • 04:21 you know going towards that that Instagram platform on the Gen.
  • 04:24 Z side of things.
  • 04:25 But
  • 04:26 I think you make a valid point.
  • 04:27 I think when you kind of look at
  • 04:29 some of the the more kind of next Gen.
  • 04:31 Gen.
  • 04:31 Z
  • 04:32 population out there, it is all kind of TikTok it's snap out there.
  • 04:36 But you know
  • 04:37 I think you know when we kind of think about
  • 04:39 you know meta here
  • 04:41 they are starting to kind of you know find a way here with Reels.
  • 04:44 I think they're going to be other kind of tools out there that they throw
  • 04:47 that could potentially kind of help
  • 04:49 improve that ecosystem.
  • 04:50 And then we also do have to see what what happens with TikTok here
  • 04:54 over the next year or so that could potentially help their business improve engagement levels and what have you so.
  • 05:00 I think, yeah, I think you make somewhat of a valid point.
  • 05:02 But
  • 05:03 that that said,
  • 05:04 I think they're still in a good place.