Proactive Investors - Meta Platforms Inc is facing high expectations from Wall Street analysts going into its third quarter financial report but analysts still see an earnings beat from the company.
The Facebook (NASDAQ:META), Instagram and WhatsApp parent will hand down its 3Q report after the closing bell in New York on Wednesday, October 25.
Market watchers, on average, expect the social networking company to report a 117.7% year-over-year increase in its earnings per share (EPS) from $1.64 to $3.57.
Revenue is expected to climb 20.6% from $27.7 billion to $33.4 billion, according to Zacks Investment Research.
Daily active users across Meta’s portfolio are expected to be 2.06 billion, representing 3.8% growth over the same time last year.
Monthly active users are forecast at 3.02 billion, which would be a 2.1% increase year-over-year.
Artificial intelligence key growth driver for 3Q
Improving ad demand, ramping Reels monetization and improving artificial intelligence (AI)-driven ad measurement are expected to drive Meta’s 3Q growth, according to analysts at the Bank of America (NYSE:BAC) (BoA).
They said positives from the quarter could be a higher-than-expected fourth quarter growth outlook, strong traction for Reels monetization that should continue in 2024, and positive commentary on AI-driven benefits for engagement and advertising spend.
“While there is optimism on ad revenue beat into results (tougher set up), post any expense guidance volatility, we think the stock can see renewed enthusiasm on 2024 upside potential (Reels, Messaging, AI-driven ad spend),” they wrote.
They have a ‘Buy’ rating on the stock and US$375 price target. Meta shares traded down about 0.9% at US$310 on Friday afternoon.
Earnings beat expected
The BoA analysts expect revenue and EPS slightly above the Street estimates of $33.5 billion and $3.79, respectively.
Analysts at Jefferies are positive on the stock heading into earnings, also expecting a quarterly revenue beat and strong fourth quarter guidance.
They too expect the company to report higher engagement from its artificial AI investments, with third-party data showing the total time spent on Instagram grew 37% year-over-year in September, and increasing advertiser return on investment and efficiency.
“We believe investors will react positively to commentary on deepening Reels engagement, improvements to measurement, strong Click to Messaging ad growth and the China advertiser tailwind,” they wrote in a note to clients.
However, they noted several factors that could cause downside, specifically 3Q revenue growth below about 20% year-over-year and fourth quarter guidance that does not call for growth acceleration.
“Expectations are high with Street calling for Meta to grow revenue about 20% year-over-year in the third quarter which would be the fastest growth since 3Q 2021,” they wrote.
“Investors are wary of any indications that macro factors (e.g. weakening consumer, higher rates) could slow ad budgets in 2024.”
Did the ‘Year of Efficiency’ work out?
They also flagged fiscal 2024 expense guidance of over $100 billion would indicate EPS pressure ahead.
“Following fiscal 2023’s 'year of efficiency' investors will want to see signs that META plans to keep its expense growth at or below revenue growth,” they wrote. “Our scenario analysis shows that every $1 billion in operating expenditures savings contributes about 2% upside to EPS.”
“Given Meta's historical cadence of growing operating expenses at or below the initial guidance, investors would likely be positive on any guide below $100 billion.”
Capital expenditures guidance of more than $35 billion could also potentially cause downside.
“Meta has already indicated that capex will grow in fiscal 2024, but did not give a specific amount,” they wrote.
“We model 21% growth to $35 billion in fiscal 2024 and would view guidance above our model as a potential negative for the stock.”
The BoA analysts expect Meta to forecast fiscal 2024 expenses of about $100 billion, assuming higher depreciation, comparison increases due to more tech talent, more Oculus units and Reality Labs investments, flattish year-over-year headcount and usual cushion in its guide.
“With Street at expenses of $96 billion, guidance could create some volatility, but Street will likely see cushion in guide,” they wrote.