In its first quarter earnings report, Meta added more users than expected, but posted its slowest revenue growth since going public a decade ago. Jeff Zananiri, Head Trading Strategist at Joy of the Trade, breaks down Meta's earnings and why he's still bearish on the stock.

Opening Bell

Meta Posts Slowest Revenue Growth Since Going Public

here to break all this down is Jeff Zananiri head trading strategist at joy of the trade, Jeff. The results are pretty interesting to me, obviously you got profits that came in better than expected, but when you look at revenue that did come in a little bit lower than anticipation, you also have sales up 7%. But when you look at that number, That number shows that the first time that we're seeing kind of the single-digit numbers, numbers for Facebook, but then you get daily active users and you see it's up 30 million, which is something that the market obviously responding to hear when you put all of that together, that that that weird mixture there. What did you make of the results? Well, the stock popped because people have been shorting the stock like crazy since the first quarter, uh, since the fourth quarter report came out showing a decline in users, showing just like the wheels falling off the truck, on, on earnings and on revenue. And uh, I don't put a lot of credence into the user's thing. I mean, twitter just came out a couple of hours ago and said, yeah, we've been, we've been cooking the books on that for a little while. So I don't know, I'm a little skittish on that. It feels like they're having a big problem with ad spent headwinds. They're having a big problem with other social media companies like Tiktok eating their lunch, they used to have a massive edge in their advertising algorithm, which they no longer have. So that businesses under pressure. So much so that they changed the name of the company to meta. I mean, but the beauty of it is that this meta businesses still, you know, theoretical in a lot of ways. Yeah, I want to get into that in a second but I'm really glad that you point out the reality is you look at this report and and the reason why I was hesitant at the top of this segment is I paused on what we were going to say in terms of better than expected because I don't want to you know, make the assumption or influence to anybody that this was a great report for meta. I just think to your point there That the market had priced in so much trouble ahead and now it's cooling off of that some of that concern, there is still a decent amount of concern priced into meta right now, when you look at it still down what 40% off of its high, you know, just a year to date. So if it was truly a great report, I think you would have seen a major bounce back. You see a significant one, but not as significant as it's down. You couldn't be more right. And if you look at the price action this morning, it's bearish. The high was made basically on the opening. It's been just fading since then. I mean a key level is obviously $200 a share the psychological level, but the real level that, you know, momentum traders that big hedge funds would come back in would be the 2 25 level, which is what it gap down to after the first quarter disaster the debacle. So I'm very skeptical. I'm still bearish on the stock. Um, yeah, people came out in the middle of the day yesterday and it was, did you see this? They leaked to the earnings and the stock puke, they started getting dumb. So they got a whole new crew of bearish traders that came in shorting the stock buying puts and they got jammed because they actually beat, if we're being honest, they beat uh, their earnings, they didn't Yeah, the profit came in at 2 72 was supposed to be 2 56 but the revenue, like you pointed out was soft 7%. I mean when you go from being a big growth company, one of the best in the world to single digits, you got to find a new game, which is why they're dumping all this cash into meta Yeah, I mean, and if you were trading at a growth rate, but now you're showing a lot less growth way more insignificant. You're going to have this, this dramatic pullback, Let's talk about getting to that 200-25 number that you were talking about a moment ago to really get kind of, you know, those institutional investors back in. Obviously a lot of that I think depends around, you know, the ad spend is one thing, but also the future prospects for growth and a lot of that scene around the metaverse. How do investors want to see meta navigate these investments into the metaverse given the reality that some of this by many timelines are like 10 years down the road. Yeah, they they are 10 years down the road. But the problem is they just lost three billion with a beat, They lost $3 billion on meta this quarter. You know what they lost in 2021 they lost $10 billion on this science project. I mean, it's gonna work, it's gonna be cool. We don't know what it's gonna look like when it's totally done. I think it's gonna be some variation between like, you know, the clunky headset experience that makes me dizzy and something much more useful. But like you said, it's 10 years down the road and right now they're losing mega huge dollars that they're putting into this thing. And the reason is, is because they have a crisis in their core business which we're seeing in terms of new revenue streams on the horizon for the company that could, I don't want to say save it. I mean, this is still a mega company that has a decent amount of revenue coming in, but by comparison, talk about a tough, comparable. Um, you know, it's not anywhere near where it was, especially on the growth projections in terms of new revenue streams on the horizon. Any idea of what those could be. I mean, I don't know how, I don't know what could supplant what could replace their ad business, which is getting crushed. It's everything. It's everything. And it was this big edge they had, it was like a space, right? Think of it like they got to the moon and then like everybody else better built that rocket ship. And so they had, they had like the most sophisticated AD al goes in the world that, that were, you know, bringing in huge money for for every for every eyeball, every click. And now everybody caught up with that specifically Tiktok. And so I just don't see, I don't see they're going to have to get the medicine going. They can't keep losing. I know they can't keep losing that kind of money on this. It's got to start yielding some fruit. It has to speaking about potentially yielding some fruit. I just don't know how much fruit this is going to yield. Obviously they announce that they're, they're having their brick and mortar store for, for meta, I guess where you can test kind of the VR headsets and and maybe get more familiar lead to maybe further adoption into the metaverse. What are your thoughts on that? And do you think they'll, they'll open more of these kind of stores. I think the stores are cool. They'll be like flagship one probably on fifth Avenue then maybe down in Miami where I'm at, they'll have one when they know there's a lot of high foot traffic and kind of like what Tesla did in the beginning or you didn't see like a lot of Tesla things, you went to a couple key locations around the world and then you would see a Tesla dealership, but you got to get traction. You've got to get traction and I'm not sure that a few stores are gonna be able to do it. I know, I'm so, I'm so cynical. I'm sorry. I think, I honestly think it's fair. Yes, but no, I think it's sorry, I'm interrupting you here. But I think, I think it's fair. I think the reality is you see meta pop and the assumption is, wow, this is a great report. This was a not so bad report I think is the better way to, to capture kind of the picture that that was presented here. But they still have to your point, a fair way to go to get back to that bullish sentiment that the company has enjoyed for what a decade now solidly and now you're seeing the pullback amid, you know, the macro environment, but also the real reality of the amount of competition here in the ad spend that's being shared over so many different spaces and then even being pulled back right now a little bit. Well I'll ask you this, let's think of it like traders were right here, right here, almost at the middle. At this point we're like $196 a share. We're gonna go to that to 25 level. We're gonna make a new low. 1st I say we make a new look. I I'm with you show and rub, rub my face in it. But I would bet I wouldn't I wouldn't be shorting it, but I would bet closer to kind of, you know where you're at. I think we probably hit a low before we get back up, but I wouldn't bet against meta in the long run here, Jeff really appreciate your insight, Jeff, Zananiri, head trading strategist at Joy of the Trade.