Facebook Q3 Results: Into the Metaverse

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Facebook (FB) stock reacted positively to third-quarter earnings. We dug into the results and transcripts to help you break down the quarter.


  • As Facebook monthly active users (MAUs) were over 2.91 billion as of September 2021, nearly all of you reading should know about Facebook and its family of apps.
  • The company operates the brands Facebook, Instagram, Messenger, WhatsApp, and Facebook Reality Labs.

Third Quarter Highlights


  • Facebook daily active users (DAU) and monthly active users (MAU) increased 6% year-over-year on tough comps. MAUs for the blue app reached 2.91 billion mostly spurred by growth in the company’s Asia-Pacific and Rest of World segments.
  • Facebook family daily active people (DAP) and monthly active people (MAP), which includes all Facebook-owned apps, increased 11% and 12% year-over-year, respectively. MAP reached 3.58 billion as of September 30, 2021.
  • Consistent with previous quarters, 79% of MAP were DAP in Q2.
  • The total number of ad impressions across Facebook services increased 9% YoY.
  • The company increased headcount 20% year-over-year to over 68,000.
  • Facebook also announced a $50 billion increase in its share repurchase authorization. The company repurchased $14.37 billion in stock in Q3.


  • Revenue for the quarter was $29.01 billion, missing expectations of $29.57 billion by 1.9%.
  • Total revenue was up 35% year-over-year, but slightly down from the $29.08 billion pulled in for Q2.
  • Revenue was down quarter-over-quarter due to a slight decrease in ARPU for Facebook and the family of apps.
  • Income from operations increased 30% YoY to $10.42 billion (36% margin).
  • Diluted EPS for the quarter was $3.22 which beat expectations of $3.19.

Management Commentary

Mark Zuckerberg, Founder + CEO

“We made good progress this quarter and our community continues to grow. I’m excited about our roadmap, especially around creators, commerce, and helping to build the metaverse.”

  • On recent criticism: “Criticism helps us get better. But my view is that what we are seeing is a coordinated effort to selectively use lease documents to pay a false picture of our company … It makes a good soundbite to say that we don’t sell these impossible trade-offs because we’re just focused on making money, but the reality is these questions are not primarily about our business but about balancing different difficult social values.”
  • On product priorities: “Our 3 product priorities remain our focus on creators, commerce and building the next computing platform.”
  • On competition: “Competition has also gotten a lot more intense, especially with Apple’s iMessage growing in popularity and, more recently, the rise of TikTok, which is one of the most effective competitors that we have ever faced. So we are retooling our teams to make serving young adults their North Star rather than optimizing for the larger number of older people”
  • On commerce: “As Apple’s changes, make e-commerce and customer acquisition less effective on the web, solutions that allow businesses to set up shop right inside our apps will become increasingly attractive and important to them. We built solutions like ads that can dynamically point to either a business’ website or their shop on our platform, depending on what will perform better for them.”
  • On the metaverse: “Our goal is to help the metaverse reach 1 billion people and hundreds of billions of dollars of digital commerce a day. And strategically, helping to shape the next platform should also reduce our dependence on delivering our services for competitors.”
  • On metaverse profitability: “So for the next 1 and 3 years, especially, I think what you’ll see is us putting more of the foundational pieces into place. This is not an investment that is going to be profitable for us anytime in the near future.”

Sheryl Sandberg, COO

  • On Apple iOS 14 headwinds: “We’ve encountered two challenges. One is that the accuracy of our ads targeting decreased, which increased the cost of driving outcomes for our advertisers. And the other is that measuring those outcomes became more difficult.”
  • On iOS measurement: “We estimate we’re underreporting iOS web conversions. We believe that real-world conversions like sales and app installs are higher.”
  • On targeting: “Targeting is a longer-term challenge. Our direct response products are built on user-level conversions. And as a result of the iOS changes, we don’t see the same level of conversion data coming through. So we have to rebuild our targeting and optimization systems to work with less data. So this is a multiyear effort.”
  • On slowing e-commerce growth: “This doesn’t mean e-commerce has stopped growing. Businesses are still making the shift online, but e-commerce is no longer growing at the pace it was at the height of the pandemic”
  • On supply chain impacts: “These factors have been compounded from many advertisers by major global supply chain issues and labor shortages, which have lost many consumer businesses with less inventory. This has reduced their appetite to generate demand from consumers, which has impacted advertising spend.”


  • Starting next quarter, the company plans to break out Facebook Reality Labs (FRL) as a separate reporting segment.
  • Under the new structure, the company will provide revenue and operating profit for two segments: 1) Family of Apps (including Facebook, Instagram, Messenger, WhatsApp and other services), and 2) Facebook Reality Labs, including AR and VR related hardware, software, and content.
  • The company expects its investment in FRL to reduce overall operating profit in 2021 by ~$10 billion.


  • Facebook expects Q4 total revenue between $31.5 billion and $34 billion as the company continues to fight headwinds and uncertainty from Apple’s iOS 14 privacy changes and macroeconomic factors.
  • The company expects FY21 expenses to be between $70-71 billion and FY22 total expenses between $91-97 billion driven by more investments in technical and production talent.
  • Facebook expects FY21 capital expenditures to be ~$19 billion and to increase to $29-34 billion (!) for FY22 driven by investments in data centers, servers, network infrastructure, etc.

Dave Wehner, CFO

“We’re obviously coming off an incredibly strong year of revenue growth in 2021. So we do expect a deceleration in growth in 2022 from the full year 2021 rate … There’s sort of uncertainty implied in our range for Q4 revenue, and I think that holds true for the 2022 outlook as well.”

“The bulk of iOS 14 updates were completed as we entered Q3, which contributed to the step-up and the impact from Q2 to Q3. Since iOS 14 is now widely adopted, we don’t expect a similar step-up in Q4”


  • At $328.69 per share, Facebook is trading at a $940 billion enterprise value.
  • Using current analyst predictions, the company is trading at 7.7x 2022 gross profit and 11.8x forward EBITDA.
  • Facebook will continue to navigate headwinds from Apple’s iOS update and from macroeconomic factors heading into the holiday season.
  • The company is also committed to building out the metaverse and will pour ~$10 billion in capex to that segment of the business. The increased headcount will also contribute to margins coming down in the next few years.

JO: There’s no doubt that $FB is extremely cheap and an attractive value stock in isolation. The problem is that ARPU is most likely going to be plateauing from here and MAU growth will see slower and slower growth rates.

The big bet here is their massive investment into the ‘metaverse’. If an investor believes that the metaverse will be a huge thing in the next 5-10 years, buying $FB now might result in huge long-term gains. Imagine buying $TSLA as they were developing the Model 3. This time, it could be buying $FB as they were developing the ‘metaverse’.

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