Meta Platforms (FB 1.09%) has some big questions to answer for investors in a few days. The tech giant, which is announcing its first earnings report since renaming itself from Facebook, will be closing out another year of record growth while offering its first detailed projection for fiscal 2022.
Let's take a closer look at a few key metrics to follow in that report, set to be released Wednesday, Feb. 2.
Image source: Getty Images.
The growth trajectory
While shares have come down lately, Meta Platforms stock has performed better than many of its tech peers, in part because its growth outlook is so strong. Revenue soared 35% year over year in the previous quarter to $28.3 billion. Expectations are not as strong this time out, as sales are likely to rise about 19% to $33.4 billion in the current period. That result would still beat the 16% boost that Netflix recently announced in its disappointing fourth-quarter report.
As usual, look for Meta to show surging digital advertising revenue that's supported by a steadily growing base of active users. That core user metric was up 6% in Q3, for context.
Wednesday's report will be the first one in which Meta Platforms details the performance of augmented and virtual reality products. I'll be watching for updates on the Oculus VR platform, a critical part of management's plan to build a foundational platform for the metaverse, which the company sees as the next transformational iteration of the internet.
Cost pressures
There will be several pressures on earnings for Q4, including soaring investments in data centers and network infrastructure. Meta Platforms is also spending aggressively in hopes of winning the war for engineering and software talent against rivals like Microsoft and Apple. Look for these challenges to show up in a potentially weaker operating margin.
FB Operating Margin (TTM) data by YCharts
That key metric shrank fell by a full percentage point in Q3 and should drop again as earnings fall to $3.03 per share from $3.30 last year. It's still achieving impressive profitability, though, with its operating margin at over 40% today.
The spending outlook
CEO Mark Zuckerberg and his team will issue a more detailed outlook for 2022 that might challenge the conventional wisdom on Wall Street. Heading into the report, most investors are expecting sales to rise by 19% this year to mark a sharp slowdown from this past year's nearly 40% spike. The health of the digital advertising market will be critical to supporting that growth. Ad spending was up nearly 200% in the most recent quarter and should continue to expand at a decent clip.
Meanwhile, it's also possible that executives disappoint investors with their lofty spending outlook. Management said back in late October that it was planning to ramp up capital expenditures to as much as $34 billion in 2022. Selling expenses, including salaries, might soar to as high as $97 billion, it said, from around $71 billion in 2021.
Investors should buckle up
Investors have become less excited about these plans for aggressive spending, even though they will likely put Meta Platforms in a leadership position in building infrastructure for the metaverse. It could be especially jarring to see the impact of that spending, plus slowing growth, on total annual earnings in 2022. My main concern is whether Zuckerberg and his team are making the right bets as they invest in areas like VR, AR, data centers, and gaming.
A year or so of weaker earnings due to this spending is no reason to abandon the bullish thesis on this dominant business. But it does imply that shareholders will have to endure more volatility when holding the stock in 2022.
