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The second quarter earnings season is getting into full swing and Big Tech companies like Alphabet (GOOG), Microsoft (MSFT), Meta Platforms (META), and Amazon (AMZN) will release their earnings reports this week.
With a year to date (YTD) gain of nearly 145%, Meta is not only the best-performing FAANG stock but also the second-best-performing S&P 500 (SPY) stock of 2023. Yet it has been quite a rollercoaster ride for META investors, as it was the worst-performing FAANG stock of 2022, losing two-thirds of its market cap.
However, Meta stock has looked strong in 2023 and the company also impressed markets with better-than-expected Q1 2023 earnings.
Meta Platforms’ Q2 2023 earnings estimates
Wall Street analysts expect Meta to post revenues of $31.03 billion in Q2 2023 – a YoY rise of 7.7%. The company’s revenues rose 2.6% in Q1 after falling in the previous three quarters. During the Q1 earnings call, Meta said that it expects to post revenues between $29.5 billion to $32 billion in the second quarter.
Meanwhile, analysts forecast a 16.6% rise in Meta’s Q2 EPS which outstrips the projected increase in sales.
While Meta’s earnings and Q3 guidance would be widely watched during the earnings release which is scheduled for Wednesday, here are the five things that I believe investors should look out for in the earnings report.
Five things to watch in Meta Platforms' earnings report
- One of the reasons Meta Platforms stock has soared in 2023 is its cost-cutting efforts. It lowered its 2023 expense guidance to between $86 billion to $92 billion – which is significantly below the $94 billion to $100 billion that it forecast originally. Among others, the company has announced 21,000 layoffs that have helped it structurally lower the cost base. During the Q2 earnings release, Meta might provide insights into whether it is done with the layoffs or are more job cuts coming in 2023.
- On a similar note, Meta CEO Mark Zuckerberg has described 2023 as the “year of efficiency” and markets would look for more details on what all additional measures the company is taking to shore up efficiency.
- Questions on “Threads” which Instagram launched earlier this month are bound to crop up during the earnings call. Reports suggest that after the initial euphoria, Threads' active user base and engagement have collapsed. During the earnings call, it would be pertinent to watch the management commentary on how the company plans to increase the engagement levels on Threads – as well as the planned trajectory of monetization.
- In May, Meta launched generative AI features for advertisers. During the upcoming earnings release, the company might provide some details on how AI is helping it increase the efficacy of advertisements. Meta incidentally sees AI as a key short-term driver and metaverse as a long-term driver.
- Meta’s Reality Labs, which is building the metaverse, lost $13.7 billion in 2022. It might be pertinent to watch the trajectory of losses in that business including any commentary on the 2023 guidance.
- Finally, Meta might comment on the digital advertising industry. The macroeconomic situation has weakened and during its Q1 2023 earnings call, Meta said that spending by Chinese advertisers helped buoy its revenues. China's economic growth has since sagged and its exports fell 12.4% in June. During the upcoming earnings release, Meta might talk about the ad spending by Chinese advertisers on the platform and whether it continues to be as strong as it was in the first quarter.
Wall Street analysts are bullish on Meta ahead of its earnings
Wall Street looks quite bullish on the stock heading into the earnings and analysts rate Meta’s stock a Strong Buy:
Of the 36 analysts that cover Meta, 31 rate it a Strong Buy, 2 a Moderate Buy, and 3 a Hold. Meta’s mean target price of $300.88 is just about 2% above the current prices but the street-high target price of $380 is an upside potential of almost 30%.
As discussed in a previous article, analysts’ action lagged Meta’s massive 2023 rally but brokerages have now started to upwardly revise the stock’s target price.
Jefferies has reiterated its Buy rating on Meta and raised its target price to $360 ahead of the Q2 earnings and expects the company to post better-than-expected results in the quarter.
JPMorgan also listed the stock as a top idea ahead of the earnings and said “Meta remains our favorite name within online ads and a Best Idea overall.”
JPMorgan has also listed Amazon as a top idea for 2023. While AMZN stock has rebounded in 2023 in line with other tech peers, its returns still trail other tech companies if we consider the price action since mid-2021 when the stock made its all-time highs.
Overall, I believe that while Meta will face easier comps in Q2, considering the revenue decline in the corresponding quarter last year, the company will need to release impressive numbers when it reports on Wednesday to help support its mammoth 2023 rally.
On the date of publication, Mohit Oberoi had a position in: META , MSFT , AMZN , GOOG , SPY . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
