Cramer's Investing Club: As Facebook misses — tanking shares — we're keeping our small position

Published Wed, Feb 2 20228:17 PM EST

Investing Club holding Meta Platforms (FB), formerly named Facebook, reported mixed fourth-quarter results after the closing bell Wednesday. While revenue at the tech giant came in better than expected, aggressive investments in augmented/virtual reality pressured overall profitability, while changes to Apple 's iOS user tracking policy continued to hurt ad targeting and measurement. The stock sank more than 20% in after-hours trading following the report. Bottom line While we like to see companies investing in future growth, and do have high hopes for Meta's metaverse ambitions, the results Wednesday evening were nonetheless disappointing as the aggressive investments resulted in lower-than-expected earnings — something investors are simply unwilling to forgive against the backdrop of inflationary concerns and expected multiple Federal Reserve interest rate hikes. Intensifying competition combined with the prior changes to Apple iOS and the transition to monetizing Reels from Feed and Stories are clearly taking their toll and materialized this quarter in the form of a disappointing revenue guide. Having successfully navigated the changes from desktop Feed to mobile Feed, and Feed to Stories to Reels, we think management will be able to pull off the transition again. However we understand that it creates a near-term headwind we have to be patient about. We have kept our 2-rated FB position very small, favoring 1-rated Alphabet (GOOGL) over it because of the latter's much cleaner story oriented around cloud growth and a more limited impact from the Apple's iOS tracking changes. That said, the severe after-hours drop in Meta shares could get us more interested — but for now, we are holding off from upgrading our rating. We'll have more to say Thursday on our Morning Meeting video livestream for Club members at 10:20 a.m. ET. Companywide results On the top line, revenue of $33.671 billion (+20% YoY) outpaced the $33.191 billion expected. However, on the bottom line, diluted earnings of $3.67 per share (-5.4% YoY) missed the $3.81 the Street was expecting. As a reminder, beginning this quarter, Meta introduced a new earnings format, now reporting results in two segments: Family of Apps , which includes Facebook, Instagram, Messenger, WhatsApp and other services; and Reality Labs , which includes augmented and virtual reality rel