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This week, four constituents of the “Magnificent 7” will report their earnings for the March quarter. Meta Platforms (META) and Microsoft (MSFT) will release their reports on April 30, and Apple (AAPL) and Amazon (AMZN) will release theirs on May 1.
The Q1 earnings season for the group began on a good note. While Tesla (TSLA) missed on both the top line and the bottom line, the stock soared after its Q1 earnings, after CEO Elon Musk announced that he would step back from his Department of Government Efficiency (DOGE) responsibilities to focus on Tesla.
Alphabet (GOOG), on the other hand, reported impressive numbers for Q1 and the stock closed marginally higher after the earnings. While cloud and YouTube revenues came in a tad short of estimates, the company beat on the headline revenue and profit numbers, led by strong growth in the core advertisement business.
In this article, we’ll look at Meta’s Q1 earnings estimates and analyze whether the stock is a buy or a sell heading into the report.
Meta Q1 Earnings Preview
Analysts expect Meta’s Q1 revenues to rise 13.4% year-over-year to $41.35 billion. During their Q4 2024 earnings call, Meta forecast Q1 revenues to be between $39.5 billion and $41.8 billion. Analysts are modelling Meta’s Q1 earnings per share to rise 10.6% YOY to $5.21. However, for the full year, analysts expect Meta’s EPS to be similar to last year.
Notably, U.S. tech giants could face higher depreciation expenses for the next few years on account of their massive capex toward artificial intelligence (AI), which would dent their profitability.
Meta’s Business from Chinese Advertisers Could Be Negatively Impacted
Digital ads account for the bulk of the revenues for Alphabet and Meta. Alphabet had a warning for the companies in the digital advertisement business that should ring an alarm for Meta investors.
Google’s Chief Business Officer Philipp Schindler acknowledged during the Q1 earnings call that the company is “not immune to the macro environment.” He added, “We wouldn’t want to speculate about potential impacts beyond noting that the changes to the de minimis exemption will obviously cause a slight headwind to our ads business in 2025, primarily from APAC-based retailers.”
While Meta is banned in China, Chinese companies use its platforms to reach potential buyers, particularly in the Western world. Chinese advertisers reaching out to U.S. consumers have been a key driver of Meta’s growth over the last couple of years – something the company has discussed in its last several earnings calls.
While Meta does not provide the breakdown of spending by Chinese advertisers, in 2024, it earned $18.35 billion in revenue from China. To put that in context, it earned $13.69 billion and $7.40 billion in 2023 and 2022 from China, respectively. This revenue is at risk from the “reciprocal” tariffs that President Donald Trump has imposed on imports from China.
Meta Stock Forecast
Sell-side analysts have also taken note of the deteriorating macro environment, and multiple brokerages have slashed Meta’s target price amid the U.S.-China tariff war. Among major brokerages, Stifel lowered Meta’s target price from $740 to $628 while Benchmark cut its from $820 to $640, even though both maintained their “Buy” rating on the stock. Cantor Fitzgerald also maintained its “Overweight” rating while lowering Meta’s target price from $790 to $624.
Despite the flurry of target price cuts, Meta’s mean target price of $690.87 is 26.1% higher than last week’s closing prices, and it has a consensus rating of “Strong Buy” from the 53 analysts actively covering the stock.
Is Meta Stock a Buy or a Sell Ahead of the Q1 Earnings?
Along with the headwinds related to its core business, especially the revenue from Chinese advertisers, Meta is also facing regulatory issues. The U.S. Federal Trade Commission is suing the social media giant for a divestment of WhatsApp and Instagram. Incidentally, Alphabet is also facing regulatory heat, and the U.S. Justice Department plans to break up Alphabet and force the company to divest the Chrome browser and Android operating system. It also wants the company to its end exclusive agreements with phone makers like Samsung and Apple.
Adding to Meta’s woes is the testimony from former Facebook executive Sarah Wynn-Williams, who alleged that Meta executives "lied about what they were doing with the Chinese Communist Party” to grow their business in that country.
Meta stock currently trades at a forward price-earnings (P/E) multiple of 22.72x, which looks quite balanced. While the multiples might not be exorbitant, they aren’t mouthwateringly cheap either to build a strong “buy” case for the stock.
Overall, given the uncertainty over tariffs and the feared slowdown in the U.S. economy, I would stay on the sidelines on Meta for the time being and not add more shares ahead of the Q1 confessional.
