Meta Platforms will report second quarter earnings late Wednesday, with stock analysts positive on the strength of its advertising sales, but listening closely for updates on the costs of the Facebook parent's AI ambitions.
Meta stock, meanwhile, is looking to shake off a recent slide. Investors are less positive lately on megacap technology stocks, with Meta joining big names such as Nvidia and Microsoft with recent losses.
On the stock market today, Meta stock is up 0.4% at 467.51 in Monday morning trading. Shares have advanced 32% this year but are off 14% from record highs reached earlier this month.
Here's what to know about Meta's upcoming earnings report:
By The Numbers
Overall, analysts expect Meta to post a 19.6% year-over-year increase in sales, to $38.3 billion, for its June-ended quarter, according to FactSet. Earnings are expected to rise 57% year-over-year to $4.71 per share, according to FactSet.
That would mark a slowdown from the 27% year-over-year revenue growth Meta recorded in its March-ending quarter.
A tougher comparison against last year's Q2 is the main culprit. The June 2023 quarter was the first one where Meta showed significant pickup in revenue growth, as its digital advertising business bounced back from a rough stretch in 2022. Meta's sales grew 11%, to $32 billion, in the second quarter of 2023, compared with 2.6% year-over-year growth in the first quarter that year.
Meta Stock: AI Spending Watch
Despite the strong sales growth for Meta in Q1, its shares sank following the report. The main reason: AI dreams are expensive. Meta Chief Executive Mark Zuckerberg told analysts that the company could spend up to $40 billion on capital expenditures in 2024, up 42% from capex spending in 2023.
Analysts will be listening for whether Meta further adds to its expected spending.
BofA Securities Analyst Justin Post, however, said he does not "anticipate a repeat of last quarter's higher 2024 expense guidance, though higher legal (costs) and capex are risks."
Separately, Zuckerberg last week announced availability for the newest version of Meta's Llama AI model. Zuckerberg called open source AI the "path forward" in a blog post. During the company's previous earnings call, Zuckerberg said the company has several paths for monetizing its AI products as they grow in popularity.
What Meta Analysts Are Saying
Overall, Post expects Meta to deliver a "modest" Q2 beat. He rates Meta stock a buy with a price target of 550.
"After a subdued 1Q call 'AI investment cycle,' management has an opportunity for a more constructive tone on returns on AI spend (plus YouTube results may have lowered the bar)," Post wrote to clients. "We remain positive on Meta and think Reels, Messaging, and AI driven ad improvements are still early, and could lead to positive product surprises and revenue upside."
Meta stock traded lower following last week's earnings report from Google parent Alphabet. Google's search-based advertising revenue beat expectations but YouTube related ad sales came in lower than expected. Google is the only company that has a larger share of the digital ad market than Meta.
Evercore ISI analyst Mark Mahaney also expects Meta to beat analyst expectations. Evercore rates Meta stock with a positive outperform call and a price target of 550.
"We view the Street's Q2 revenue estimate as reasonable, with a touch more upside vs. downside variance, given our ad channel checks suggest a consistently strong overall ad environment and strong performance by Meta ad campaigns," Mahaney wrote in a client note Friday.
Meta Stock Technical Scores
Meanwhile, the IBD Stock Checkup tool shows Meta stock holds an IBD Composite Rating of 87 from a best-possible 99. The score means Meta stock is currently in the top 13% of stocks in terms of key performance metrics and technical strength.
Shares have also plunged well below a 514.01 cup-with-handle buy point, according to IBD MarketSurge. Meta climbed past that point for a potential break out on June 27. But shares have fallen since an early July high of 542.81. Meta stock's Relative Strength line has fallen from a 95 (out of 99) earlier this month to 85.
