/Facebook%20-tWX_ho-328k-unsplash.jpg)
We’re now into the busiest week of this earnings season, and among others, tech giants like Microsoft (MSFT), Apple (AAPL), Amazon (AMZN), and Meta Platforms (META) will release their quarterly reports this week. Notably, it hasn’t been a good earnings season for tech companies so far; Tesla (TSLA), Netflix (NFLX), and Alphabet (GOOG) all fell after their Q2 reports.
In Alphabet’s case, Google's parent fell despite better-than-expected earnings. One plausible reason behind the recent tech sell-off has been the group's demanding valuations, because these companies need a lot more than merely a “beat” on the headline numbers to justify those premiums.
Amid the fall in tech stocks, Meta Platforms has lost 13% from its 52-week highs, and is in the correction zone after having fallen over 10% from the peak. Can Meta – which was the only “Magnificent 7” stock to fall after its Q1 earnings release, and lost $132 billion in market cap in a single day– recoup its recent losses after the Q2 earnings release? We’ll discuss in this article, beginning with a preview of what Wall Street expects from the Facebook parent’s Q2 earnings.
Meta Platforms Q2 Earnings Preview
Analysts expect Meta to report revenues of $38.3 billion in Q2, a YoY rise of 19.6%. During the Q1 earnings call, Meta Platforms’ management forecast revenues between $36.5 billion and $39 billion for Q2, which - at the midpoint of $37.75 billion - arrived below the $38.3 billion that analysts were expecting.
Consensus estimates call for Meta’s Q2 earnings per share (EPS) to come in at $4.69, which implies a YoY rise of over 45%. Meta’s bottom line has grown at a brisk pace over the last year, thanks to the relentless focus on cost cuts.
What to Watch in Meta’s Q2 Earnings
Along with the headline numbers, I would watch for the following when Meta reports its Q2 earnings on Wednesday after the closing bell rings:
- Q3 Guidance: Last quarter, Meta spooked investors with its tepid guidance. All eyes will be on the company’s Q3 guidance when it reports its earnings this week. Consensus estimates call for a 14.7% rise in Meta’s Q3 revenues, while growth is expected to further taper down to 12.6% in the year's final quarter.
- Chinese Advertisers: Higher ad spend by Chinese advertisers trying to reach consumers in the West has been a key driver of Meta’s top-line growth. With the looming U.S. presidential elections, where Republican candidate Donald Trump has vowed even more tariffs on imports from China, I would listen for Meta’s comments on whether it sees any notable changes in the spending trajectory of Chinese advertisers.
- AI Monetization, New Open-Source Model: Last week, Meta released its Llama 3.1 405B, which Mark Zuckerberg termed “the first frontier-level open-source AI model.” He also tried to allay fears over the revenue impact of making the model open source, and said it “doesn’t undercut our revenue, sustainability, or ability to invest in research.” He also stressed that open-source AI models are safe, contrary to what many believe. During the earnings call, Meta might provide more color on the new model, including the timeline for its monetization.
Meta Stock Forecast: Analysts Turn Bullish Ahead of Q2 Earnings
Wall Street analysts have given Meta a consensus rating of “Strong Buy,” and its mean target price of $538.76 is 15.7% higher than last week’s closing prices. Its Street-high target price of $630 is 35.3% higher than those levels.
If anything, analysts have been turning incrementally bullish on Meta ahead of its Q2 report, as Oppenheimer and Bernstein raised the stock’s target price heading into the confessional, while Morgan Stanley advised buying the dip.
Should You Buy the Dip in Meta Stock?
To be sure, Meta faces several risks and challenges this year. A possible return of Donald Trump (with his VP pick, JD Vance) is hardly the ideal outcome for tech giants, and more so for Meta, as the former President has been a vocal critic of the company. Also, a crackdown on Chinese imports under a Trump presidency could hurt Meta’s revenues from China-based advertisers.
That said, AI looks like a near-term opportunity for Meta, as the company leverages the technology to boost its revenues. Its metaverse investments could also be a game changer in the long term, even as the business is currently losing billions of dollars every quarter.
From a valuation perspective, Meta trades at a next-12 months price-to-earnings (PE) multiple of 22.3x, which while not particularly steep, is not exactly mouthwatering either. Overall, I believe it would make sense to buy the dip in Meta shares, but not go all out, yet given the many headwinds the company faces in 2024.
On the date of publication, Mohit Oberoi had a position in: AAPL , AMZN , META , GOOG , TSLA , MSFT . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
