Meta (META) will report its third quarter earnings on Wednesday after the bell, and is coming into this cycle on a roll.
Investors will be zeroing in on two areas that the Facebook and Instagram parent has been prioritizing — its AI efforts, and its positioning in the digital advertising market, which has been in a prolonged slump and is just showing signs of a rebound.
Reels, Instagram’s short-form video feature, has been central to the company’s advertising and monetization plans this year. The feature has purportedly been driving growth in advertising spend and user engagement and, even more saliently, had a $10 billion revenue run rate in the second quarter.
“We forecast accelerating revenue in (the second half of 2023) on ramping Reels monetization,” wrote TD Cowen’s John Blackledge, who rates the stock at Outperform, on Oct. 13.
Furthermore, Meta has been looking to make its case as an AI leader, rolling out a range of generative AI features for advertisers, and for consumers, with a focus on Gen Z.
Meta shares have risen 150% year-to-date, massively outperforming both the S&P 500 and the Nasdaq Internet Index, which are up around 11% and 34% this year, respectively.
Currently, Wall Street analysts’ recommendations for Meta break down to 60 Buys, 7 Holds, and 2 Sells.
However, there are legal risks in Meta’s near future. The company is currently facing federal and state lawsuits from 42 attorneys general, alleging that its features geared towards children are addictive.
“We’re disappointed that instead of working productively with companies across the industry to create clear, age-appropriate standards for the many apps teens use, the attorneys general have chosen this path,” a Meta spokesperson said in a statement.
The earnings rundown
Here’s what Wall Street’s expecting to see when it comes to Meta’s key metrics, as compiled by Bloomberg:
Revenue: $33.52 billion expected
Earnings Per Share: $3.60 expected
Facebook Daily Active Users: 2.07 billion expected
Reality Labs Operating Loss: $3.94 billion expected
Q4 Revenue Outlook: $38.76 billion expected
Additionally, Reality Labs, the company’s mixed reality business, will also likely be in the spotlight, as the Quest 3 headset just launched. The VR and AR business has been a subject of controversy for Meta, as losses have been piling up. To date, Meta has lost more than $20 billion running Reality Labs, with $13.7 billion of that number coming from 2022. Meta has said it expects these losses to continue.
These expenses are an asterisk encouraging caution, on a Wall Street that’s otherwise bullish about Meta.
“With street cautious on expense and capex guide, key driver for stock will be 4Q revenue guidance, and we expect a strong 4Q,” wrote Bank of America’s Justin Post, who rates the stock a Buy, on Oct. 20. “We think the stock can see renewed enthusiasm on 2024 upside potential – Reels, Messaging, (and) AI-driven ad spend.”
Allie Garfinkle is a Senior Tech Reporter at Yahoo Finance. Follow her on X, formerly Twitter, at @agarfinks and on LinkedIn.
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