META reported its third quarter earnings on Wednesday, beating on the top and bottom lines. However, an initial wave of optimism was stymied after the company issued conservative Q4 guidance.
During the company’s earnings call, Meta’s CFO, Susan Li, mentioned that recent geopolitical unrest, particularly in the Middle East and more broadly, is causing a “softening” in the advertising market.
Li explained to analysts, “It’s hard for us to attribute demand softness directly to any specific geopolitical event. Historically, we’ve seen broader demand softness following other regional conflicts in the past, such as the Ukraine war. So, this is something we’re continuing to monitor. We’ve incorporated the latest trends and advertiser reactions that we’ve observed into our Q4 outlook, which, again, I think reflects the greater uncertainty and volatility ahead.”
Initially, Meta’s shares rose as much as 4% in after-hours trading but later retraced those gains after the company’s call.
Meta has been navigating challenging waters as it positions itself as an AI-powered advertising giant while simultaneously investing heavily in virtual reality (VR) and augmented reality (AR). As the parent company of Facebook and Instagram, Meta has been focusing on two key areas of interest for investors: its AI initiatives and its presence in the digital advertising market, which has experienced a prolonged downturn but is now showing signs of recovery.
In Q3, Meta reported advertising revenue of $33.64 billion, surpassing the expected $32.94 billion. The company also exceeded estimates for ad impressions, with a 31% year-over-year increase, compared to the expected 29.6%.
Meta’s shares have experienced significant growth, rising more than 130% year-to-date, outperforming the S&P 500 and the Nasdaq Internet Index, which have seen gains of around 9% and 34%, respectively, this year. its third quarter earnings
Daniel Flax, an analyst at Neuberger Bergman, noted, “The stock has done well this year. If they can drive durable growth and translate that into earnings per share and free cash flow generation, I think the stock can continue to work its way higher.”