After two stellar Mag 7 earnings (TSLA and GOOGL) in the past week to kick of Q3 megacap tech reports, investors were hoping that the streak would continue when MSFT and META reported after the close (preview here). And while MSFT appears to have succeeded in also beating estimates (its stock is rising modestly after the close), it was buyside darling META that was the focus of attention today, although as UBS said, with a positioning score of 9.5/10, that "question what will be the incremental positive learning coming out of the print." It turns out the answer is nothing, and the stock is dropping despite reporting relatively solid results while raising capex expectations higher.
Here is the breakdown for Q3:
- Revenue $40.59 billion, +19% y/y, beating estimates of $40.25 billion
- Advertising rev. $39.89 billion, +19% y/y, beating estimates of $39.71 billion
- Family of Apps revenue $40.32 billion, +19% y/y, beating estimates of $39.92 billion
- Reality Labs revenue $270 million, +29% y/y, missing estimates of $312.8 million
- Other revenue $434 million, +48% y/y, beating estimates of $395.5 million
- Operating income $17.35 billion, +26% y/y, beating estimates of $16.24 billion
- Family of Apps operating income $21.78 billion, +25% y/y, beating estimates of $20.47 billion
- Reality Labs operating loss $4.43 billion, +18% y/y, beating estimates of loss $4.66 billion
- Operating margin 43% vs. 40% y/y, beating estimates of 39.6%
- EPS $6.03 vs. $4.39 y/y, beating estimates of $5.25
While the earnings were solid, where there was some weakness for the second quarter in a row was ad impression growth which declined from 10% in Q2 (when it missed estimates of 13%) to +7%, also missing estimates of +10.8%. This was somewhat offset by the average price per ad, which rose 11%, above the 6.8% estimate, but it is unclear how much more it will be able to raise prices in the future if and when the US economy slides into a recession.
Finally, according to the company, roughly half the world continues to log onto its platform every day, with average family service users per day 3.29 billion, +4.8% y/y, above the estimate of 3.25 billion.
In brief remarks accompanying the earnings release, CEO Mark Zuckerberg said that "we had a good quarter driven by AI progress across our apps and business... We also have strong momentum with Meta AI, Llama adoption, and AI-powered glasses."
Looking ahead, the CFO made the following forecasts:
- Expect Q4 total revenue to be in the range of $45-48 billion, vs sellside estimates of $46 billion
- Expect full-year 2024 total expenses to be in the range of $96-98 billion, up from the prior range of $96-99 billion. For Reality Labs, expects 2024 operating losses to increase meaningfully year-over-year due to ongoing product development efforts and investments to further scale our ecosystem.
- Expect full-year 2024 capital expenditures will be in the range of $38-40 billion, up from the prior range of $37-40 billion. The company expects significant capital expenditures growth in 2025: "Given this, along with the back-end weighted nature of our 2024 capital expenditures, we expect a significant acceleration in infrastructure expense growth next year as we recognize higher growth in depreciation and operating expenses of our expanded infrastructure fleet."
- Expect Q4 tax rate to be in the low-teens
The bottom line is that after surging to all time highs earlier this month, and with literally everyone, everywhere long the company (it is the Mag7 name with the heaviest concentration across at both Goldman and UBS), there was little META could say to surprise to the upside, and as a result, the stock is lower modestly after hours.
