Meta’s Q4 guidance erases earnings beat gains

Meta's Stock Initially Rose by as Much as 4% in After-hours Trading | The Enterprise World

Meta (META) released its third-quarter earnings on Wednesday, surpassing expectations in terms of revenue and profit. However, the initial surge of optimism was dampened when the company issued a cautious outlook for the fourth quarter.

Meta’s stock initially rose by as much as 4% in after-hours trading

During the earnings call, Meta’s CFO, Susan Li, pointed out that geopolitical instability, both recent events in the Middle East and on a broader scale, is causing a slowdown in the advertising market. She mentioned that it’s challenging to directly attribute the decline in demand to specific geopolitical events. However, historical data indicates that regional conflicts, like the Ukraine war, have historically led to a broader decrease in demand. The company has incorporated these recent trends and advertiser reactions into its Q4 forecast, acknowledging the increased uncertainty and volatility in the future.

Following the earnings call, Meta’s stock initially rose by as much as 4% in after-hours trading, but those gains were reversed in the wake of the call.

Meta has been navigating through a challenging period, striving to establish itself as a dominant force in AI-driven advertising while simultaneously investing heavily in virtual reality (VR) and augmented reality (AR). The parent company of Facebook and Instagram has been focusing on enhancing its presence in two critical areas of interest for investors: AI initiatives and its position in the digital advertising market, which has been in a prolonged slump with only recent signs of recovery.

In the third quarter, Meta reported advertising revenue of $33.64 billion, surpassing the expected figure of $32.94 billion. The company also exceeded expectations for ad impressions, recording a year-over-year increase of 31%, compared to the expected 29.6%.

The stock has performed well this year

Meta’s stock has surged by more than 130% year-to-date, significantly outperforming both the S&P 500 and the Nasdaq Internet Index, which have seen gains of approximately 9% and 34% for the year, respectively.

According to Neuberger Bergman analyst Daniel Flax, “The stock has performed well this year.” He further emphasized that if Meta can sustain its growth and translate it into earnings per share and free cash flow generation, the stock is likely to continue its upward trajectory.

However, Meta faces potential legal challenges in the near future, with 42 attorneys general pursuing federal and state lawsuits against the company. These lawsuits allege that Facebook and Instagram’s features designed for children are addictive. A Meta spokesperson expressed disappointment that the attorneys general chose to take legal action rather than collaborating with the industry to establish clear, age-appropriate standards for teen-oriented apps.

As of now, Wall Street analysts’ recommendations for Meta consist of 60 Buy ratings, seven Hold ratings, and two Sell ratings.

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