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Earnings season continues to chug along, with a vast selection of companies pulling the curtain back and unveiling what’s transpired behind the scenes. So far, we’ve received quarterly results from many notable companies, including Netflix (NFLX - Free Report), Microsoft (MSFT - Free Report), and Tesla (TSLA - Free Report).

Now, another titan within the market, Meta Platforms (META - Free Report), is slated to unveil quarterly results on Wednesday, Feb. 1, after the market close. How does the mega-cap titan stack up heading into the print? Let’s take a closer look.

Advertising

Being a social media titan, Meta Platforms generates the bulk of its revenue through advertisements. In fact, advertising accounted for nearly 97% of the company’s FY21 revenue, so it’s easy to understand why it’s such a critical metric.

It’s no secret that the digital advertising market has been weak, as this is typically one of the first expenses companies cut when faced with a challenging macroeconomic backdrop.

The slowdown was seen in the company’s most recent quarterly release; Meta Platforms reported advertising revenue of $27.2 billion, which exceeded the Zacks Consensus Estimate of $26.8 billion but reflected a 3.5% decline from the year-ago quarter.

For the release, the Zacks Consensus Estimate for META’s advertising revenue stands firm at $30.3 billion, which suggests a decrease of 7% year-over-year.  

Reality Labs

In addition, the company’s Reality Labs segment has been a center of attention, with the company investing heavily in the space for long-term growth. In META’s latest quarter, Reality Labs’ revenues totaled $285 million, falling nearly 50% year-over-year primarily due to weak demand for its Quest 2 VR Headset. Further, Reality Labs’ expenses piled up quickly, reported at $4 billion and growing 24% year-over-year.

Many have scrutinized Reality Labs’ profitability, especially as the company continues to invest heavily during a somewhat uncertain economic outlook.

Nonetheless, the Zacks Consensus Estimate for Reality Labs’ revenue stands at $800 million, suggesting a roughly 9% year-over-year decline. It’s worth noting that the company fell short of our consensus revenue estimate regarding Reality Labs by 30% in the last reported quarter.

Quarterly Estimates

Five analysts have revised their earnings estimates for the quarter over the last 60 days, with three falling on the positive side. The Zacks Consensus EPS Estimate of $2.12 suggests a decrease of roughly 40% year-over-year.

Image Source: Zacks Investment Research

Our consensus revenue estimate stands firm at $31.3 billion, indicating a decline of roughly 7% from year-ago quarterly sales of $33.7 billion.

Quarterly Performance

META has fallen short of earnings estimates as of late, missing on the bottom line in back-to-back quarters. In its latest release, the company posted a negative 12.8% surprise. Top-line results have been more robust, with META posting back-to-back revenue beats. Below is a chart illustrating the company’s revenue on a quarterly basis.

Image Source: Zacks Investment Research

Valuation

The company’s valuation multiples have pulled back amid the stretch of poor price action; META’s forward earnings multiple currently resides at 18.6X, nowhere near the 23.5X five-year median and below the Zacks Computer and Technology sector average.

Image Source: Zacks Investment Research

Further, the company’s forward price-to-sales ratio works out to be 3.3X, a fraction of the 7.7X five-year median and slightly above the Zacks sector average.

Image Source: Zacks Investment Research

Meta Platforms currently carries a Style Score of a “B” for Value.

Putting Everything Together

Many eyes will be fixated on Meta Platforms’ (META - Free Report) upcoming quarterly release, as it’s quickly become of the most popular stocks over the last several years.

Two metrics that investors should keep a close eye on include the company’s advertising and Reality Labs revenue. Analysts have primarily been bullish in their earnings revisions for the quarter, with estimates indicating a year-over-year decline in earnings and revenue.

In addition, the company’s valuation multiples have pulled back extensively following a brutal 2022. Heading into the release, Meta Platforms is a Zacks Rank #3 (Hold) with an Earnings ESP Score of 6.9%.

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