Meta stock falls after management highlights volatile macro environment

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Important points

  • Shares of Meta Platforms (META) fell sharply on Thursday after company executives said fourth-quarter results could be affected by a volatile macro environment.
  • If the economic downturn continues, Meta’s advertising revenue, which accounts for 98% of its total revenue, could decline.
  • Meta also faces increased scrutiny from lawmakers and regulators concerned about the company’s business practices.
  • Management and analysts remain optimistic, citing strong business fundamentals and advertiser demand, as well as opportunities presented by artificial intelligence (AI).

Meta Platforms (META) shares rose Thursday after company executives said late Wednesday that fourth-quarter results could be affected by macroeconomic and geopolitical uncertainties, as well as regulatory actions. It fell as a result.

Meta announced better-than-expected profits on Wednesday, sending its stock higher in after-hours trading. But those gains narrowed after management warned on an earnings call of a “volatile macro environment” that could impact ad spending.

If the global economy weakens in the coming quarters, advertising spending on Meta’s platform could decline. Advertising spending is a significant part of Meta’s business model, with advertising revenue accounting for over 98% of his total revenue.

“At the end of the day, we are very sensitive to changes in macro conditions,” said Susan Lee, Meta’s chief financial officer.

One of the biggest concerns is the prolonged economic slowdown in China. Chinese advertisers increased spending on meta apps in the third quarter, but that momentum could slow if China’s economic downturn continues into next year.

Lee acknowledged the possibility of further volatility, saying there are “so many macro factors at play” that are very difficult to predict. “We have seen periods where there have been lockdowns and restrictions have weighed on demand and shipping costs have increased.”

Geopolitical tensions also increase risks

Mehta executives also acknowledged risks from geopolitical tensions such as the Middle East conflict. The company had seen a softening in ad spending earlier in the quarter, coinciding with the conflict between Israel and Hamas, but Lee said it was difficult to attribute the softening in demand directly to any particular geopolitical event. It’s difficult.” Meta updated its fourth-quarter outlook and expanded its guidance to account for the increased uncertainty.

Lee also noted that although Meta has little direct revenue exposure to Israel or the Middle East, geopolitical conflicts have had some impact on Meta’s performance in the past, at least in the short term. was also revealed.

However, Jefferies analysts said the company’s “unusually strong” sales growth outlook of 13% to 24% for the fourth quarter likely reflects the resumption of many previously paused advertising campaigns. , said it reflected “ample conservatism” as it also continued direct response advertising. Stay strong.

Lawmakers and regulators target meth

In addition to macro uncertainties, Meta may face other challenges in the coming quarters. That means scrutiny from lawmakers and regulators concerned about the company’s business practices.

On Tuesday, a coalition of 33 states sued Meta, demanding that the company change its business practices and comply with regulations that protect youth online.

In addition to this week’s lawsuit, Meta and other big tech companies, along with companies like Google (GOOGL) and Google (GOOGL), are facing federal lawsuits alleging that big tech companies wield too much power and influence. It faces intensive regulatory oversight from agencies such as the Trade Commission (FTC). Amazon (AMZN) has a near-monopoly in areas such as online search, advertising, and retail.

Meta stock closed Thursday at $288.35, down 3.7%, after dropping nearly 7% to $279.40 early in the session. Despite Thursday’s pullback, the stock is still more than doubling since the beginning of the year.

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