In the past two months, Meta Platforms Inc. shares have stayed pretty much the same. Will the earnings report on Wednesday afternoon start a new trend?
Investors may not be just thinking about the current quarter or even the most recent one. UBS expert Stephen Ju said that Meta META -0.47% will have a lot of positive factors going for it the rest of the year. These include Reels continuing to make money and the effect of AI tools for advertisers.
But Ju and his team believe that investors’ “sentiment is beginning to weaken” as they think about how big the business drivers for 2025 will be.
From the beginning of 2023 to the end of May, Meta shares almost tripled. But since the start of June, they’ve dropped about 2%.
Ju is still optimistic about Meta shares, though, and he will be looking for signs of some new trends that Facebook’s parent company can use in the future. He thinks the company “is entering a new phase as a steady compounder,” with click-to-message ads, Shops ads, Threads, and AI chatbots as growth engines that don’t make a lot of money yet.
Scott Devitt of Wedbush is also bullish on Meta shares, even though he thinks the market has “mixed” hopes for growth in the near future.
We haven’t seen any signs that U.S. advertisers’ growth is slowing down yet, and our checks show that [return on ad spending] is healthy, as 96.5% of advertisers we talked to said that ROAS was stable or better over the last three to six months.
Alphabet Inc.’s GOOG 0.38% GOOGL 0.32% earnings report last week was a recent sign to be careful. It showed good search results but a miss in the YouTube area.
But what does that mean for Meta? The company’s business mix gave analysts a lot of confidence.
Devitt said, “We think strength in the core search business signals broadly healthy digital advertising trends through [the second quarter]. We also want to make it clear that Meta’s exposure to long-form video is limited.”
Also read: Tech giants earn a lot this week as markets become more careful. The experts say this is a “more stable” AI play.
According to FactSet, experts who follow the company expect adjusted earnings per share to be $4.72 in the June quarter, up from $2.98 in the same quarter last year. It’s expected that sales will reach $38.26 billion, up from $32 billion.
Another thing that people are interested in is Meta’s growing open-source presence in AI with its Llama service, which gets analysts excited.
When Llama 3.1 came out, it had more than 25 partners, such as AWS, Nvidia, Google Cloud, Microsoft, and others. Citi’s Ronald Josey wrote, “We’ll be listening for any insights on a possible enterprise approach (we highlight Meta’s growing customer service opportunity)”
Ben Reitzes, an expert at Melius Research, said that Meta’s Llama work could keep competitors on the edge of their seats. He said that the most recent Llama release is “more responsible, more commercially viable, and easier to access than ever.” He also said that Meta was “committed to upgrading its models and software stack on a rapid cadence.”
“That most likely means competitors need to keep spending,” he said. Could OpenAI become the next Netscape? Do you think Microsoft will let that happen? Is Google going to take longer? “We don’t believe that.”
People who invest will, of course, be looking for Meta’s own comments on spending. The business is more organized in many areas, but investing in AI is still a big deal.
Because Citi’s Josey thinks that Meta’s “year of efficiency” in ’23 will be remembered for a long time, they don’t think that management will raise their running expense estimates for ’24, unless it’s for legal and non-cash costs. “Recent steps taken by Reality Labs to cut costs, such as splitting the division in two, have given us hope.”
Investors in semiconductors, on the other hand, will be looking for signs that Meta wants to keep spending a lot on AI.
Reitzes says that Nvidia wants to help Meta make AI usage more efficient and cost-effective because it will help create a boom in inference once models are in use.
Meta’s latest capital-expenditure estimate, which came out with the last report, says the company will spend $35 billion to $40 billion over the course of the year. In the past, they thought it would be $30 billion to $37 billion.
