What Wall Street is saying about Meta ahead of earnings

Meta Platforms (META), the parent company of Facebook, Instagram, WhatsApp, Oculus, Threads and other brands, is scheduled to report second quarter 2024 results after market close on Wednesday, July 31 with a conference call scheduled for 5 pm ET. Here’s what to watch for:

EXPECTATIONS: Last quarter, Meta Platforms reported earnings of $4.71 per share on revenue of $36.46B, both of which beat consensus forecasts.

Mark Zuckerberg, Meta founder and CEO, said at the time: “It’s been a good start to the year. The new version of Meta AI with Llama 3 is another step towards building the world’s leading AI. We’re seeing healthy growth across our apps and we continue making steady progress building the metaverse as well.”

The company said at that time that it expected second quarter revenue to be in a range of $36.5B-$39B, versus the then-current consensus of $38.29B.

The firm also noted that it saw full-year 2024 total expenses to be in the range of $96-99 billion, updated from a prior outlook of $94-99B due to higher infrastructure and legal costs.

Current consensus EPS and revenue forecasts for Meta’s June-end quarter stand at $4.73 and $38.31B, respectively, according to data provided by LSEG Data and Analytics. The consensus EPS and revenue forecasts for Meta’s September-end quarter reported by LSEG Data stand at $4.88 and $39.14B, respectively.

AI COSTS: On the day following Meta’s last report, Jefferies analyst Brent Thill lowered the firm’s price target on the shares to $540 from $585 and kept a Buy rating, noting that Q1 revenue growth accelerated to 27% year-over-year from 22% in the prior quarter and saying that “expense discipline was on full display” with an 8% EPS beat. However, the acceleration in Q1 was likely being overshadowed by the implied Q2 revenue growth deceleration and increases in the FY24 total expense and capex outlooks. The firm believes in Meta’s “successful track record of generating meaningful returns from prior investment cycles” and views Meta as capable of $24 of EPS in FY25, advising investors at that time to “buy the Zuck shopping cart dip.”

On May 2, Exane BNP Paribas analyst Stefan Slowinski initiated coverage of Meta Platforms with an Underperform rating and $360 price target. The company’s artificial intelligence spending is set to spike without new revenue streams to match, the analyst told investors. The firm prefers Meta’s generative AI peers that it believes have a clearer path to monetization, it added.

To start July, Loop Capital analyst Rob Sanderson said the firm was “increasingly optimistic” about Meta Platforms’ position and remained uncertain about Google’s. Generative artificial intelligence appears to have open-ended potential for the technology sector “and the arms race is fully on,” the analyst told investors. The firm says the path to generating return on investment, revenue models and timeframe are still big questions for investors. Loop believes Meta’s strategy to advance AI tools for creators and businesses is taking shape and “makes a lot of sense.” Meta also appears to be spending meaningfully more on tech infrastructure than Google, perhaps 50% to 60% more over the last two years, according to the firm. Loop says Alphabet’s historic valuation premium has shifted to now favor Meta slightly. The valuation delta will increasingly favor Meta over the next several quarters and likely the next few years, argued the firm, which has a Buy rating on Meta and Hold rating on Google parent Alphabet (GOOGL).

About a week ago, Meta announced that Meta AI is now available in seven new languages and more countries around the world, including in Latin America for the first time. Meta said it is introducing new Meta AI creative tools, “making it easier to bring your vision to life and turn your ideas and imagination into images.”

Meta also announced the release of Llama 3.1 405B, the first frontier-level open source AI model, as well as new and improved Llama 3.1 70B and 8B models. “In addition to having significantly better cost/performance relative to closed models, the fact that the 405B model is open will make it the best choice for fine-tuning and distilling smaller models,” Meta CEO Mark Zuckerberg said in a blog post. “Beyond releasing these models, we’re working with a range of companies to grow the broader ecosystem. Amazon (AMZN), Databricks, and Nvidia (NVDA) are launching full suites of services to support developers fine-tuning and distilling their own models.” Zuckerberg said Meta is “committed to open source AI.”

Noting that Meta provided an update on its AI progress and the company’s role in the broader ecosystem, along with the release of Llama 3.1 and expansion of Meta AI, JPMorgan called these announcements “encouraging,” noting Llama 3.1 is the largest open source model and management expects Meta AI to become the most used AI assistant by year-end, if not sooner. The firm, which adds that it believes investors are bracing for further potential increases to capex for 2024 and 2025 given the heavy level of AI-associated capex intensity, maintains an Overweight rating on Meta shares.

EYES ON EYEWEAR PARTNER: On July 18, Financial Times’ Arash Massoudi, Hannah Murphy, and Silvia Sciorilli Borrelli reported that Meta was exploring taking a multibillion-euro stake in EssilorLuxottica (ESLOY) as the Facebook owner intensifies its push to develop smart glasses. According to multiple people with knowledge of its thinking, Meta is considering taking a “small” stake in the eyewear group and has been holding talks with EssilorLuxottica to deepen their existing collaboration following the successful launch of a revamped version of their “Ray Ban-Meta” smart glasses last year. Meta has been working with Morgan Stanley on the matter, according to one of the sources cited in the FT’s report.

On July 25, EssilorLuxottica CEO Francesco Milleri said on a call with analysts that his company had been informed of Meta Platforms’ intention to acquire a stake, Bloomberg reported.

SENTIMENT: Check out recent Media Buzz Sentiment on Meta as measured by TipRanks.