Meta Platforms (META) sheds 4% ahead of earnings on GOOGL miss

Meta Platforms (META) lost 4% afterhours on Tuesday following Alphabet's (GOOGL) largescale earnings miss. The owner of Facebook, Instagram and Whatsapp sank to $132 after the search giant missed Wall Street consensus marks, and that news transferred to worries over Meta's third-quarter earnings that are scheduled following Wednesday's market close.

Meta Platforms earnings preview

Wall Street is expecting $1.85 in GAAP earnings per share (EPS) on $27.4 billion in sales. This is much lower than the second quarter when Meta Platforms missed consensus on top and bottom lines but still produced EPS of $2.46. It would also be way off the third quarter of 2021 when META reported $3.22 per share on $29.01 billion in revenue.

The sagging sales and profit this quarter may be warranted, however, since Alphabet and Snap (SNAP) have both already reported. Snap actually beat on the bottom line, but even more so than Microsoft (MSFT) management refused to commit to any guidance for the fourth quarter. Markets detest uncertainty, and Snap sold off 28%. Alphabet roundly missed analysts' expectations, underperforming EPS consensus by 15% and revenue by more than 2%. 

The market has META shares selling off in Wednesday's pre-market because they are expecting the same. When even Microsoft and Alphabet are missing their marks, then Meta Platforms' underperformance seems like a foregone conclusion. Out of 31 analysts revising META earnings over the past quarter, 30 have cut their estimates for EPS. 46 analysts have trimmed revenue expectations. Additionally, in each of the past four quarters, META has missed consensus on at least either the top or bottom line. Last quarter it missed both.

Bank of America Securities cut META from Buy to Neutral on Monday. "While [...] expectations have been lowered, we expect advertiser budget cuts in early 2023 to weigh on sentiment and drive added uncertainty," wrote the bank's analyst. BofA cut its price target as well from $190 to $150.

Altimeter Capital's Brad Gerstner wrote an open letter to the social media giant on Monday. As an investor, Gerstner said that Meta needs to cut its staff by as much as 20% and reduce its capex on metaverse investments to no more than $5 billion a year.

"Like many other companies in a zero rate world — Meta has drifted into the land of excess — too many people, too many ideas, too little urgency. This lack of focus and fitness is obscured when growth is easy but deadly when growth slows and technology changes," wrote Gerstner.

Meta Platforms stock forecast

Meta Platforms stock had been above the 20-day moving average, a good sign, but the price action in the premarket has placed it back below near $131. There is no nearby support other than the covid low from March 2020 at $123, which mostly worked to hold back the sell-off on October 13. Below there is the support region surrounding $114 to $115 from late 2016 (not pictured on the daily chart below).

On the upside there is the 50-day at $148 could be a level to take profit if META stock happens to release an unexpected beat and a raise in results. META remains negative for us, however, until it attains $155. That places it in neutral territory. $170 is then the level where bulls can begin to get excited. 

META daily chart