Meta's Q2 Advertising Softness and Weak Q3 Guidance; Turnaround in 2023; $346 FVE; Shares Attractive

Meta’s second-quarter results were again disappointing and the firm provided third-quarter revenue guidance well below expectations. However, our main takeaway from the numbers and the earnings call was that the main issue facing the firm is a potential downturn in the economy. The firm’s first year-over-year revenue decline indicates demand is slowing, reflecting economic uncertainty, the impact of Apple’s data privacy changes, and increasing competition. However, we were pleased with user growth, excluding a decline in Facebook users in Europe, due in part to the Ukraine war. With continuing user growth, we believe Meta’s network effect remains intact. We expect further monetization of Reels along with an economic turnaround to return top-line growth to low- to mid-teen rates beginning in the second half of 2023. We are lowering our projections for 2022 and beyond, reducing out fair value estimate to $346 per share from $384. We continue to view this wide-moat firm as attractive.