Instagram, WhatsApp, Oculus and other brands, is scheduled to report third-quarter results after market close on Wednesday, October 26 with a conference call scheduled for 5 pm ET. What to watch for:

CONSENSUS EXPECTATIONS: Last quarter, Meta Platforms reported earnings of $2.46 per share, missing consensus at that time of $2.61, on revenue of $28.82B that missed the $28.94B consensus forecast. The company said at that time that it expected third-quarter revenue to be in a range of $26B-$28.5B, missing the then-current consensus of $30.52B.

Meta noted that its revenue forecast reflected "a continuation of the weak advertising demand environment we experienced throughout the second quarter, which we believe is being driven by broader macroeconomic uncertainty." The company added: "We also anticipate third quarter Reality Labs revenue to be lower than second-quarter revenue. Our guidance assumes foreign currency will be an approximately 6% headwind to year-over-year total revenue growth in the third quarter, based on current exchange rates. In addition, as noted on previous calls, we continue to monitor developments regarding the viability of transatlantic data transfers and their potential impact on our European operations. We expect 2022 total expenses to be in the range of $85-88 billion, lowered from our prior outlook of $87-92 billion. We have reduced our hiring and overall expense growth plans this year to account for the more challenging operating environment while continuing to direct resources toward our company priorities. We expect 2022 capital expenditures, including principal payments on finance leases, to be in the range of $30-34 billion, narrowed from our prior range of $29-34 billion."

Current consensus EPS and revenue forecasts for Meta's September quarter stand at $1.89 and $27.38B, respectively, according to data provided by Refinitiv. That EPS estimate is down from $2.69, where it stood 90 days ago, Refinitiv data shows.

BAR SET BY GOOGLE: In an earnings preview note published on October 25, KeyBanc analyst Justin Patterson lowered the firm's price target on Meta shares to $175 from $196 and maintained an Overweight rating. Amid mounting concerns on a downturn in 2023, the analyst said investors are increasingly skeptical of Street revenue growth projections for Meta and Alphabet (GOOGL) and are instead focused on capital allocation and expense discipline. While he was anticipating flattish-to-low single-digit EPS growth at both companies, Patterson believes progress with cost containment initiatives could reassure investors that 10%-plus revenue growth and high-teens to 20%-plus EPS growth is attainable in a 2024 recovery. The analyst sees more potential upside from Meta given subdued sentiment around metaverse investments, he added at the time.

Subsequently, Patterson lowered the firm's price target on Alphabet to $118 from $120 with an Overweight rating on the shares after Google's parent company reported Q3 net revenue that he said was largely in line with his below consensus estimate and operating profit 3% lower due to mix. With more macro headwinds evident, Patterson believes the debate centers on how quickly management can rein in expenses to prevent margins from reverting to 2019-2020 levels, he added in his note published following Alphabet's report on Tuesday night.

ALTIMETER ASKS META TO "GET FIT": On October 24, Altimeter Capital Chairman and CEO Brad Gerstner said in an open letter to Meta Platforms and CEO Mark Zuckerberg that the company has too many employees and is moving too slowly to retain the confidence of investors. Gerstner said in the letter: "Meta needs to get its mojo back. Meta needs to re-build confidence with investors, employees and the tech community in order to attract, inspire, and retain the best people in the world. In short, Meta needs to get fit and focused. To accomplish this goal, we recommend a three step plan that will double FCF to $40 B per year and focus the company's teams and investments: Reduce headcount expense by at least 20%; Reduce annual capex by at least $5 B from $30B to $25B; and Limit investment in metaverse / Reality Labs to no more than $5B per year." The executive added that "People are confused by what the metaverse even means. If the company were investing $1-2B per year into this project, then that confusion might not even be a problem." Gerstner concluded by saying: "We don't have any demands. We simply wanted to further engage and continue sharing our thoughts as an interested shareholder. We believe in this team. We know Meta has more reach, more relevance, and more incredible opportunities for growth than almost any platform on the planet. And we are confident that your long-term investments in AI and the next generation of communications will continue to drive us all forward."

DOWNGRADES: On October 24, BofA analyst Justin Post downgraded Meta Platforms to Neutral from Buy with a price target of $150, down from $196. The analyst stated that while his checks suggest that the company's Q3 results will have "stability", his expectations for Q4 and FY23 have been reduced as advertiser budget cuts early next year weigh on sentiment and create uncertainty following IDFA changes and the Reels transition. Post added that he projects only 4% revenue growth in 2023 versus consensus calling for 9%, and there is some "downside risk" to that view in a recession. BofA also removed Meta Platforms from the firm's "US 1 List" in conjunction with the stock having been downgraded.

On October 11, Atlantic Equities analyst James Cordwell downgraded Meta Platforms to Neutral from Overweight with a $160 price target. The analyst believes Meta's growth outlook is "increasingly challenged" given strengthening macro headwinds, rising competition for advertising dollars and his analysis suggesting that secular tailwinds in digital advertising are set to ease. Given high decremental margins and greater challenges reducing costs than anticipated, Meta faces ongoing downside risk to earnings, Cordwell told investors.

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