We are entering the busiest week of this earnings season, with reports lined up from five constituents of the ‘Magnificent 7.’ Alphabet (GOOG) will release its September quarter earnings on Tuesday, followed by Meta Platforms (META) and Microsoft (MSFT) the next day. Apple (AAPL) and Amazon (AMZN) will step into the confessional on Thursday, leaving only Nvidia (NVDA) to report, with those earnings due out next month.
Notably, the Nasdaq Composite ($NASX) finally hit a new record high on Friday, with a little nudge from Tesla (TSLA) – which started the earnings season for Magnificent 7 stocks with a bang. While Tesla’s revenues missed estimates, and the bottom-line beat was largely driven by higher sales of regulatory credits, the most important takeaway from the earnings call was the rosy outlook provided by CEO Elon Musk. Despite the use of the word “guess” frequently and the delivery forecast sounding tough to achieve, Musk had something to please both short-term as well as long-term investors during the earnings call, making it a rockstar performance.
Meta Platforms Q3 Earnings Preview:
If we set aside Nvidia, which has been in a universe of its own, Meta is the best-performing Magnificent 7 stock heading into its Q3 earnings report, while Tesla was the worst-performing. In fact, Tesla was not only the worst-performing constituent of the coveted group, but the stock was also in the red for the year heading into its earnings. There was a lot of pessimism surrounding Tesla after the much-hyped “We, Robot” event failed to impress, especially considering the high expectations. Wall Street wasn’t too bullish on the company’s short-term outlook, either, given falling margins and negative delivery growth in the first nine months of the year.
While the Facebook parent has come off its highs, Meta will step into the Q3 confessional on a very different note compared with Tesla, and will need to justify its mammoth YTD rally – most crucially, the expansion in its valuation multiples.
Meta Q3 Earnings Preview:
Analysts expect Meta to report revenues of $46.2 billion in Q3 – a YoY rise of 15.2%. Consensus estimates are slightly more bullish than Meta’s own forecast, as the company had projected Q3 revenues between $38. 5 billion-$41 billion during the Q2 earnings call. Analysts expect Meta to report earnings per share (EPS) of $5.17 – nearly 18% higher than the corresponding quarter last year. Notably, over the previous few quarters, Meta’s EPS growth was quite a bit higher than its topline growth, thanks to its aggressive cost cuts as part of its focus on “efficiency.” However, incremental gains on that front have been withering away, due in part to the company’s higher outlays towards artificial intelligence (AI).
What to Watch During Meta’s Q3 Earnings Call:
Along with the headline numbers, I will watch out for the following during Meta’s Q3 earnings call: Guidance. While Meta’s Q4 guidance will be closely watched during the earnings call, I’ll also look out for any commentary for 2025, even as Meta is unlikely to provide quantitative guidance before the Q4 call.
During the upcoming Q3 earnings call, Meta is expected to provide insights into its financial projections for 2025, including expenses, revenues, and capital expenditures. This information will be crucial for investors to follow.
Meta’s AI initiatives are gaining momentum, with the company being seen as an early leader in monetizing AI. Mark Zuckerberg has expressed confidence that Meta’s AI assistant will become the most widely used globally by the end of 2024, which he considers a significant milestone. Analysts will be keen to hear updates on Meta’s AI strategies during the Q3 call.
The performance of Meta’s Reality Labs, which is responsible for building the metaverse, has been a concern due to increasing losses. Sales of virtual reality (VR) headsets have been underwhelming, and there are reports of other tech giants, like Apple, suspending production of their VR devices. Meta has also discontinued certain headset models and reportedly dropped plans for a premium mixed-reality headset. Investors will be looking for comments on the future of Reality Labs and any changes to Meta’s headset strategy during the Q3 earnings call. Analysts are bullish on Meta’s stock ahead of its Q3 earnings. JPMorgan has listed Meta alongside Uber and Amazon as top stock picks. Bank of America also maintains a bullish stance on Meta, considering it a top AI stock pick, although they caution about high expectations and potential near-term volatility. Bernstein has an ‘overweight’ rating on Meta, raising its target price to $675. The consensus rating from 48 analysts covering the stock is ‘Strong Buy’, with a mean target price of $619.28, which is about 8% higher than the closing price on Friday. The highest target price is $811, indicating a potential upside of over 41%. Meta Platforms is currently trading at a next-12 months price-to-earnings (PE) multiple of 25.2x. This multiple bottomed at 12.3x in November 2022 and has since doubled, surpassing historical averages. The increase in Meta’s valuation is partly attributed to its successful AI pivot. However, the PE multiple would be more reasonable if not for the substantial losses posted by the Reality Labs segment. Markets are anticipating positive commentary from Meta on its short-term AI plans and a long-term shift towards the metaverse. Mark Zuckerberg may need to deliver an impressive performance during the Q3 earnings, similar to his past ‘year of efficiency’ initiative. With that initiative now completed, Meta needs a new narrative to engage investors.
