Meta Platforms (META -4.13%) had an awful 2022. Revenue growth stalled at just the wrong time for the social media business, leading to collapsing earnings in the nine months that ended in late September. The company will close out 2022 with its Q4 earnings announcement in early February that's expected to show a 3% sales drop.
Wall Street isn't optimistic about the year ahead, either. Most Wall Street pros forecast that revenue will rise in the low-single-digit-percentage range as annual earnings decline for a second straight year.
Let's look behind those headline projections for clues to where the stock might be headed as management works to turn the Facebook owner around.
Meta is growing faster
The immediate challenge for CEO Mark Zuckerberg and his team is to get the business back on a growth footing. The good news is that this goal is more achievable than you might think after a glance at the company's 4% year-over-year sales decline in Q3. Strip out currency exchange rate shifts and that figure becomes a 2% increase, after all.
Meta is still gaining users, too, even on its most mature platform, Facebook. It's not hard to see how a sustained focus on engaging videos in the Reels service can contribute to improving sales trends in 2023. "The fundamentals are there for a return to stronger revenue growth," Zuckerberg told investors in late October. Ideally, executives will back up those words with more concrete signs of a rebound in the early February update.
Meta has been slashing costs
Meta entered the 2022 year with some of the best finances in the tech industry. But the scale of its negative turn here has been hard to watch.
META Operating Margin (TTM) data by YCharts
Operating income through the first three quarters of the year dropped to $22.5 billion from $34.2 billion. Net income in that period fell by more than $10 billion to $18.5 billion.
Watch for Meta to be brutal in slashing costs this year so it can end this profitability slide. The company already got the ball rolling here as it closed offices and announced layoffs in some areas. Yet these moves likely won't start affecting the bottom line in a big way until future years, perhaps when sales growth is accelerating again.
The big questions Meta needs to answer
Meta isn't skimping on the investments that management thinks will drive growth over the next several years. The Reality Labs division, home to the Quest VR brand, is projecting accelerating losses in 2023 as spending ramps up in areas like hardware and the metaverse. The company should add more context about these projects when it closes out fiscal 2022 and issues its first detailed projection for the new year ahead.
The stock's path in 2023 will depend in part on things that are outside Meta's control, including the pace of advertising spending and consumers' discretionary tech budgets.
Yet there's still plenty the company can do to improve sales and profitability trends over the next several quarters. And if both metrics have started rebounding, Meta shares have a good chance at outperforming the market in 2023 after posting their worst year yet last year.
