Star company earnings season Raiders

Views 2424 Nov 5, 2024

How to view Meta's performance in October 2024? There are significant fluctuations in advertising cycles, and in the metaverse, less loss means more success.

How to view Meta's performance in October 2024? There are significant fluctuations in advertising cycles, and in the metaverse, less loss means more success. -1

In recent years, perhaps one of the most volatile stock prices among the tech giants in the US is $Meta Platforms (META.US)$ From a peak of $384 in 2021 to a low of $88 in 2022, the price of Meta once dropped by as much as 77%. By 2024, Meta's stock price reached a new historical high, surpassing $540 at one point, increasing fivefold from the low. This roller-coaster stock price trend is truly heart-pounding.

How to view Meta's performance in October 2024? There are significant fluctuations in advertising cycles, and in the metaverse, less loss means more success. -2

The ability of Meta's stock price to make a comeback may be largely related to the turnaround in its performance. Since the end of 2021 when Facebook announced its rebranding to Meta and made significant investments in the metaverse, Meta's performance was lackluster for several consecutive quarters, and its stock price plummeted. It wasn't until the fourth quarter of 2022 that Meta's performance hit rock bottom and started to bounce back, following a V-shaped reversal in its stock price.

From this, we can also see that Meta's stock price has great elasticity, making its performance a focus of the market's attention. After the post-market trading on October 30th, Meta will release its latest financial results. Each release of financial results by the company may also signify a good trading or investment opportunity. Prior to this, investors need to understand how to interpret its performance.

How should we look at Meta's performance? Can the trend of performance reversal continue? We can pay attention to several key points such as user traffic, advertising revenue, and losses in the metaverse business.

1. User Traffic

For a social ecosystem like Meta, user traffic is its foundation, and the growth of user traffic is the fundamental driver of revenue growth. Currently, Meta owns exceptional social products like Facebook, Instagram, WhatsApp, among others, with the core being the Facebook platform. In terms of changes in user traffic, we need to focus on user scale, user stickiness, and user value.

Looking at the user scale, in Q4 2023, Meta's total monthly active users across all platforms reached 3.98 billion, an increase of 20 million compared to the previous quarter. The daily active users reached 3.19 billion, an increase of 50 million, both setting historical highs. In Q2 2024, Meta's daily active users reached 3.27 billion, adding another 30 million compared to the previous quarter, showing continuous growth on top of a high base, overall with positive momentum. However, the company did not disclose the monthly active user data for this quarter.

How to view Meta's performance in October 2024? There are significant fluctuations in advertising cycles, and in the metaverse, less loss means more success. -3

From the perspective of user stickiness, the main indicator is the proportion of daily active users among the monthly active users. We can see that this ratio has been maintained at a relatively high level close to 80% for a long time, and it is very stable.

In terms of user value, the main focus is on Average Revenue Per Paying User (ARPP) indicator. We can see that since 2022Q3, Meta's ARPP has been steadily increasing for 8 consecutive quarters, with each quarter's growth rate exceeding 10%, indicating a continuous rapid increase in user value.

How to view Meta's performance in October 2024? There are significant fluctuations in advertising cycles, and in the metaverse, less loss means more success. -4

Overall, Meta's user traffic base may still be relatively stable. In the upcoming new earnings reports, we can continue to pay attention to whether Meta can further strengthen its user traffic base.

2. Advertising Revenue

Based on its huge user traffic, advertising business has become Meta's primary source of revenue, accounting for over 98% of its revenue. From this perspective, Meta may be the most pure advertising company among the tech giants. Despite Meta's resolute way of changing its name to convey its determination to enter the metaverse business, the market may still be most concerned about its advertising business.

Meta's performance in the past few quarters has fluctuated greatly, experiencing a reversal from decline to growth. From a revenue perspective, it is mainly determined by its advertising business.

How to view Meta's performance in October 2024? There are significant fluctuations in advertising cycles, and in the metaverse, less loss means more success. -5

So how can we judge the growth trend of its advertising business? Focus on two main points.

First, economic cycles. Although Meta is an Internet company, its advertising business has strong cyclical attributes because advertising demand is closely related to the economic cycle. Starting from mid-2022, the pressure of rate hikes by the Federal Reserve reduced advertisers' expectations for economic growth and corporate product demand, leading to reduced advertising spending and pressure on Meta's growth. Meta's revenue also began to decline year-on-year from 2022Q3.

However, since 2023, advertisers have found that the actual economic situation is much better than the original pessimistic expectations, advertising spending has started to increase, thus driving Meta back to growth. In Q2 2024, Meta's advertising revenue increased by 21.7% year-on-year, although the growth rate compared to the previous quarter has declined, it still remains above 20%. Currently, the market's expectations for US GDP growth have not weakened, and Meta may still experience a period of sweetness.

Secondly, the enhancement of advertising by artificial intelligence. Meta management stated in a previous earnings conference call that AI-recommended content is the fastest growing content in Facebook subscriptions. At the same time, the company has launched the automated advertising product Meta Advantage, almost all Meta advertisers are using at least one AI-driven product.

It can be seen that artificial intelligence can optimize the efficiency of content promotion on one hand, and improve the conversion rate of advertising on the other. However, neither of these may have short-term effects, and we need to focus on the optimization of artificial intelligence for Meta's advertising business from a long-term perspective.

3. Metaverse business losses

To break away from reliance on the advertising business, Google developed its cloud business, while Meta heavily invested in the metaverse. The difference is that Google's cloud business development has been relatively smooth, but Meta's journey into the metaverse has been full of obstacles.

This is mainly because the metaverse is still in the early stages of market adoption, the content ecosystem and business ecosystem have not yet been established, and those willing to pay are mostly novelty-seeking users, far from mainstream. Therefore, Meta's Reality Labs business unit revenue in the metaverse is not high, with high initial capital expenditures and operating losses, becoming a drag on Meta's profitability and cash flow.

Looking at the loss situation, Reality Labs generally earns revenue in the hundreds of millions of dollars per quarter, which is relatively unstable, but operating losses amount to tens of billions of dollars. By 2023 Q4, Reality Labs' quarterly revenue exceeded $1 billion for the first time, but losses also reached $4.65 billion. In Q2 2024, Reality Labs revenue fell back to $0.35 billion, while losses still exceeded $4 billion.

How to view Meta's performance in October 2024? There are significant fluctuations in advertising cycles, and in the metaverse, less loss means more success. -6

From the free cash flow perspective, due to Reality Labs needing to consume a large amount of R&D expenses and capital expenditures, it will have a relatively large negative impact on cash flow. From the Futubull app, we can see that Meta's single quarterly free cash flow once dropped from over $10 billion to less than $500 million.

The good news is that in the recent few quarters, Meta's reality lab operation losses have narrowed, although there was a significant rebound starting in 2023Q4. However, due to the good trend of advertising business growth, its free cash flow situation has overall experienced a significant rebound, maintaining above 11 billion USD for 5 consecutive quarters.

How to view Meta's performance in October 2024? There are significant fluctuations in advertising cycles, and in the metaverse, less loss means more success. -7

Therefore, for Meta's metaverse business, although the long-term prospects may be bright, there is still a lot of uncertainty. The market is also not willing to pay for a distant vision. On the contrary, the market may be more concerned about the losses brought by this business. Therefore, in future performance, we need to pay more attention to the losses of the metaverse business. It is best not to see the losses continue to expand, thereby once again affecting the overall profit margin and cash flow in a bad situation.

Seeing this, you may have some new insights on how to interpret Meta's performance. It is worth mentioning that each time a star company releases its performance, it may mean a rare trading opportunity for different types of investors.

Please use your Futubull account to access the feature.

Conversely, if investors believe that the latest performance of a certain company will not be optimistic and will bring pressure on the short-term stock price, investors may consider short selling, which can be done by considering margin selling or buying put options.

Of course, if investors feel uncertain about the bullish or bearish direction of a company's performance, but the stock price may experience significant upward or downward volatility after the performance announcement, investors may consider capturing potential opportunities by trading the volatility of its stock price, considering employing a straddle strategy by purchasing both call and put options simultaneously.

Finally, to summarize,

User traffic is the foundation of Meta. We can focus on its user base, user stickiness, and competitor development.

Advertising business is the absolute mainstay of Meta's revenue, we need to pay attention to the changes in the economic cycle and the boost that AI brings to the advertising business.

Metaverse business is the new focus of Meta, but it is currently in a state of significant losses, we need to be wary of the possibility of increasing losses.

Every time a company releases its earnings, it may bring potential trading opportunities. Investors can consider suitable types of trades based on their individual risk tolerance.

How to view Meta's performance in October 2024? There are significant fluctuations in advertising cycles, and in the metaverse, less loss means more success. -8

Disclaimer: The above content does not constitute any act of financial product marketing, investment offer, or financial advice. Before making any investment decision, investors should consider the risk factors related to investment products based on their own circumstances and consult professional investment advisors where necessary.

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