The rebound of Facebook's parent company has propelled Meta stock to the second-best performance this year in the S&P 500. Can its third-quarter earnings keep the party going?
Expectations are high as Meta prepares to report results after trading closes on Wednesday. Analysts anticipate earnings of $3.64 per share from revenue of $33.6 billion, according to FactSet. That's a 122% earnings increase and 21% sales increase.
On the stock market today, Meta shares closed down a half-percentage point at 312.55. Beyond that, Meta stock has climbed 161% this year coming into trading Tuesday.
Digital Ad Recovery
Despite all the metaverse talk, Meta collects about 98% of its revenue from advertising on its "Family of Apps." That group includes Facebook, Instagram, Reels, WhatsApp and, now, Threads.
Analysts are expecting Meta to post a 21% year-over-year increase in advertising revenue, to $33.6 billion for the third quarter. That's compared to a 12% annual increase in the second quarter and 4% increase in the first quarter.
Meta is lapping one of its worst-ever quarters. Shares sank last year after the company reported a 4.5% yearly decrease in overall revenue and 50% drop in profits.
At that point, digital advertising spending cooled and privacy changes by Apple hurt Meta's ability to sell targeted ads.
This year, analysts see a much stronger ad market.
"We believe the setup for our digital advertising coverage remains positive for (second-half 2023) despite macroeconomic uncertainty, and industry estimates remain broadly encouraging as growth rates continue to accelerate across digital segments," Wedbush analyst Scott Devitt wrote in a recent client note. Meta is a top pick for Devitt, along with Google-parent company Alphabet.
Further, Meta last year launched AI-powered ad tools for businesses called Advantage+ to compensate for changes made by Apple.
Meta officials are expected to given an update on that initiative and its efforts to monetize Reels, Meta's TikTok competitor.
Is It Still The Year Of Efficiency?
After a brutal 2022 for Meta stock, Chief Executive Mark Zuckerberg earned back some good will on Wall Street with a commitment to make 2023 a "Year of Efficiency."
Meta slowed spending and slashed more than 20,000 jobs. The cuts boosted Meta's earnings in recent quarters as revenue recovered.
Zuckerberg also announced a range of new metaverse-focused and consumer-focused AI products at the Meta Connect conference last month.
Investors will be watching guidance on operating expenditures closely. JPMorgan analyst Doug Anmuth expects the company to provide a total expenses outlook between $96 billion and $102 billion, compared to an expected $85 billion in spending this year.
"Meta is focused on the (two) Big Tech waves of AI and metaverse, and it will spend into those major growth opportunities while also remaining disciplined," Anmuth wrote in a recent client note.
Meta Stock: AI Push
Anmuth's note highlights the balancing act for the company. The efficiency message helped spur its turnaround but the company needs to spend if it wants to be a leader in artificial intelligence, not to mention usher in the metaverse.
Recent comments from Zuckerberg indicate he sees the company as being back in the driver's seat.
"We went through a period where we had some quite big business challenges: handling in a recession and revenue not coming in the way that we thought and needing to do layoffs, and that required a somewhat different style," Zuckerberg told The Verge last month. "But now I think we're squarely back in developing really innovative products, especially because of some of the innovations in AI."
Meta Stock Technical Ratings
Meta's turnaround this year has bought the company more breathing room to develop those products, particularly the much-longer term metaverse spending. Analysts generally are most positive on AI products, such as the Meta AI chatbots.
Highlighting its strong performance, Meta stock holds a Relative Strength Rating of 98 out of a best-possible 99, according to IBD Stock Checkup.
