Shares of Meta Platforms Inc. (META) have been declining for the past seven days, with the stock dropping by 1.3% in afternoon trading on Tuesday. If the downtrend continues, it will mark the longest losing streak for the stock since a seven-session stretch that ended on May 14, 2019, according to Dow Jones Market Data.
Meta’s stock decline comes despite the company’s share price surging 73% so far this year. With Meta and Alphabet set to report their first-quarter earnings soon, investors will be keen to gain insights into the digital-ad market in general and how these tech giants will fare specifically.
Meta is set to report its Q1 earnings after the market closes on Wednesday, while Alphabet, Google’s parent company, will release its results after Tuesday’s trading. Both companies are major players in the digital-advertising market, which has witnessed incredible growth in recent years.
The pandemic expedited the shift towards digital advertising, as businesses pivoted to online sales channels to reach their customers. As a result, companies like Meta and Alphabet have experienced tremendous demand for their digital advertising services. In 2021, digital ad spending in the US reached $191.82 billion, accounting for approximately 71.5% of total media ad spending, according to eMarketer.
More recently, Meta has been making headlines with its push into the metaverse, an online space that engages users through immersive, interactive experiences. The company has invested heavily in this area and even rebranded itself from Facebook to Meta to emphasize its new focus. The metaverse could represent a significant opportunity for Meta, as it opens new avenues for digital advertising.
For Q1, analysts expect Meta’s revenue to come in at approximately $33.62 billion, a 21% increase from the same period last year. Advertising is expected to account for the majority of the company’s revenue, with approximately 98.5% coming from this sector. Investors will be watching to see if Meta’s investment in the metaverse starts to pay off and has a positive impact on the company’s bottom line.
Meanwhile, Alphabet is also expected to post strong Q1 results, fueled by its dominance in the digital-ad market through its widely used search engine, Google. For Q1, Alphabet’s revenue is forecasted to be around $72.89 billion, a 25% increase compared to the same period last year. Alphabet’s advertising segment is expected to account for roughly 80% of its total revenue.
In addition to advertising, both companies have diversified their revenue streams through other businesses. Meta has its popular messaging apps, WhatsApp and Instagram, while Alphabet has its cloud computing division, Google Cloud, and video-sharing platform, YouTube.
Nonetheless, the companies’ heavy reliance on advertising could also pose risks. Digital advertising is subject to regulatory scrutiny and changes in data privacy norms, which may affect the profitability of Meta and Alphabet in the future. For instance, Apple’s recent privacy update disrupted Facebook’s advertising business, as it gave users the choice to block app tracking for advertisers, impacting both the reach and revenue potential of digital ads.
As Meta and Alphabet prepare to announce their Q1 earnings, investors will be paying attention not only to the companies’ advertising revenue, but also to their broader strategies moving forward. For Meta, the metaverse represents a new frontier with significant potential, while Alphabet will likely continue to invest in its cloud computing and content creation sectors.
In conclusion, Meta and Alphabet’s upcoming Q1 earnings may provide valuable insight into the current state of the digital-ad market and the future prospects for these tech giants. Investors will be keen to see how their recent investments and pivots, particularly Meta’s shift towards the metaverse, will affect their financial performances, growth trajectories, and overall market positions.
