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Tomorrow we get the Q1 earnings through from Meta Platforms (NASDAQ:FB). There’s a bad taste in the mouth from the Q4 earnings, that missed expectations and saw a material drop in the share price of 25% on the day. With the market also jittery in general following the war un Ukraine, rising US yields and China growth concerns, earnings from one of the largest players will be closely watched. Here’s the details.

Watch for the DAU figures

The main cause of concern from Q4 was the first quarterly fall in daily active users (DAU). We think that this will be closely watched in the Q1 report, to see if it was simply a blip. If it was, then focus will turn to other key metrics, such as revenue growth and operating profit margins. However, if DAU falls, the Meta share price could be under significant pressure.

We don’t think that another fall in DAU will cause another 25% drop on the day. This is because the Q4 earnings sought to readjust expectations of investors going forward. However, it would certainly see another kick in the teeth for the company. It could spark concerns that this is going to become a longer term trend and something that is serious.

An update on Reality Labs

Another point that will be closely watched is the progress of the Reality Labs division. This houses the arm related to the metaverse, something that’s at the center of the business following the brand shift from Facebook to Meta last year.

So far, heavy investment in the division means that it booked a $10bn operating loss last year. We aren’t too concerned about this, but will be wanting to see what progress is in store for 2022. Ideally, a much smaller loss would be preferable, along with some tangible signs that progress with the metaverse is being made. Even if this relates to the release of VR headsets or collaborations with existing players, we feel the market needs to be fed something to keep it happy.

If not, we think investors will be concerned that this is an expensive side hobby of Zuckerberg and Co, one that is distracting away from the main cash cow of advertising revenue.

Revenue growth versus expectations

Finally, we’ll be seeing how the overall numbers stack up against the analysts forecasts. For example, revenue is expected at $28.2bn versus last years $26.2bn. Even if the business provides revenue growth, it depends how this matches versus expectations.

Growth is growth, but if the figure comes in around $27bn, then Meta shares could fall.

Based on all of the above, we think that Meta shares are going to be very volatile around earnings release, so would suggest trading carefully.

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