The Meta Platforms (NASDAQ:FB) share price could be set to soar when markets open today. In extended trading last night, the stock jumped 18% following the company’s earnings report.
Shares in Facebook’s parent company have had a difficult few months. Since the start of the year, the share price has almost halved. But could an encouraging report be a sign that things are looking up for Meta’s shareholders?
Meta’s earnings report
I’m a Meta Platforms shareholder and I view the earnings report as somewhat mixed. Revenues came in at just under $28bn, representing a 7% increase on the first quarter of 2021. But higher costs and expenses meant that operating income and net income both came in lower than a year ago.
The most encouraging thing for shareholders, though, was that the company’s report on the number of people using its platforms. After its last earnings report, the stock fell sharply as a result of the company reporting a decline in the number of daily active users on its flagship platform Facebook.
The number of daily active users is important because it gives investors a feel for the kind of value proposition that Meta is offering. The company makes its money by attracting advertisers. So it’s important to its customers — the advertisers — that the platforms in its Family of Apps segment are attracting users that will see those ads.
Encouragingly, the number of daily active users on Facebook increased in the most recent quarter. Having previously declined from 1.93bn to 1.929bn, the number jumped to 1.96bn, with the most significant growth coming from outside Europe and the US.
What next?
Investors are clearly responding positively to the fact that Meta Platforms has managed to arrest the decline in users. But is a jump of 18% in the company’s share price an overreaction to some encouraging news?
I don’t think that the stock is worth 18% more today than it was when it closed last night. But I also thought that the company’s shares were too cheap when they dropped suddenly three months ago.
One thing that’s catching my eye is that Meta appears to be doing a less effective job of monetising its users than it was previously. Across the board, the average revenue per user was lower than it had been in previous quarters.
That’s a source of concern to me. As I see it, the biggest threat to Meta’s advertising business is the recent privacy restrictions from Apple. In my view, these could seriously limit the effectiveness of Meta’s platform for advertisers and could prove a significant headwind to cash generation.
Overall, though, I still take the view that the Meta Platforms share price is attractive and I’d be happy to buy more for my portfolio at current prices.