Meta Q3 2022 earnings

Meta reports third-quarter earnings on Wednesday after the bell.

Here’s what analysts are expecting:

• Earnings: $1.89 per share, according to Refinitiv
• Revenue: $27.38 billion, according to Refinitiv
• Daily Active Users (DAUs): 1.98 billion, according to StreetAccount
• Monthly Active Users (MAUs): 2.96 billion, according to StreetAccount
• Average Revenue per User (ARPU): $9.32, according to StreetAccount

Facebook’s parent is contending with a broad slowdown in online ad spending, challenges from Apple’s iOS privacy update and increased competition from TikTok. Add it up, and Meta is expected to post its second straight quarter of declining sales.

Although Meta is investing heavily in its Reels short-video service to steer users away from TikTok, the product is in the early days of generating revenue and isn’t as lucrative as Facebook’s core features, like Stories and the newsfeed.

Meta is trying to make Reels more attractive to advertisers and has announced new ad formats intended to give businesses enhanced options for promoting their products through short videos. The company also recently debuted new ways for companies to advertise on Instagram and Messenger, padding its overall ad inventory, which could potentially bolster overall sales.

Still, the stock is down about 60% for the year, more than double the drop in the Nasdaq, and analysts are skeptical of the company’s prospects through this year and into 2023.

Bank of America recently downgraded Meta from buy to neutral and said in a research note that “we expect advertiser budget cuts in early 2023 to weigh on sentiment and drive added uncertainty” following the Apple update and the “Reels transition.” The firm said it expects 4% growth in 2023, below Wall Street estimates of 9%, and sees “some downside risk to our estimates in a recession.”

Investors will also be focused on Meta’s user numbers, which have stagnated. Most concerning are the user figures in the U.S. and Canada, its biggest region for revenue.  

In the second quarter of 2022, Meta counted 197 million daily active users in those two North American countries, down from 198 million in the same quarter in 2020.

Meanwhile, Meta is investing billions of dollars a year into the metaverse, the yet-to-be developed digital universe that people can access with virtual reality and augmented reality headsets.

Earlier this week, Meta shareholder Brad Gerstner of Altimeter Capital wrote an open letter to Meta, lambasting the company for employing too many workers and spending too much money on the metaverse.

The firm recommends that Meta reduce its head count by 20% and trim its metaverse investment to a maximum of $5 billion a year. Meta’s Reality Labs unit lost more than $10 billion in 2021.

“Meta needs to re-build confidence with investors, employees and the tech community in order to attract, inspire, and retain the best people in the world,” Gerstner wrote in the letter. “In short, Meta needs to get fit and focused.”

On Tuesday, Alphabet reported weaker-than-expected results and said YouTube advertising revenue dropped 2% from a year earlier to $7.07 billion in the third quarter. Ruth Porat, Alphabet’s chief financial officer, said the decline “primarily reflects further pullbacks in advertiser spends.”

WATCH: Meta needs to focus on the core business, not the Metaverse