Meta Platforms stock has rocketed more than 500% from its late-2022 nadir. But the Facebook parent's stock faces a test of its strength later today, when third-quarter results come due.
Ahead of the report, Meta stock is up a fraction at 597.42. Shares are approaching an all-time high of 602.95, likely helped by strong results from digital advertising competitors Alphabet, Snap and Reddit.
The Facebook parent company's stock is ahead 66% year to date, placing it among the 20 top-performing stocks in the S&P 500.
"Meta's strong engagement and revenue execution (and operating-expense discipline) and Generative AI leadership has given the market more confidence in multi-year growth durability," analysts with Morgan Stanley wrote in a client note.
Still, there are a couple of items investors will be watching closely to confirm bullishness for Meta stock is still warranted. Here's what to watch:
Q3 Expectations For Meta Stock
Analysts polled by FactSet see Meta posting a 19% increase in earnings, to $5.21 per share. Sales are seen rising 17.7% to $40.2 billion. That would mark a deceleration from Meta's second-quarter sales growth of 22%. Revenue for Meta grew 27% in the first quarter.
While it has made bets on developing AI models and augmented-reality glasses, Meta still derives almost all its revenue and operating income from selling advertising on its "Family of Apps," which include Facebook, Instagram, Reels, WhatsApp and Threads.
Meta stock took a huge hit when its digital advertising business slumped in 2022 and bounced back by reinvigorating the business in 2023.
Analysts with Jefferies expect Meta's ad business to remain strong. The firm projects that Meta will exceed the midpoint of its revenue guidance for the quarter of $39.75 billion, citing checks with industry experts.
"Most experts were generally positive for Meta, noting continued momentum as clients continue to use this as the primary channel for good ROAs," Jefferies analyst Brent Thill wrote in a recent note, referring to return-on-advertising spending. Thill rates Meta stock a buy.
What Is The Cost Of Meta's AI Push?
Investors will be watching for updates on costs. Meta has upped its capital expenditures expectations for 2024 in back-to-back quarters, citing its AI push. The company currently projects it will spend up to $40 billion on capital expenditures this year. Meta Chief Executive Mark Zuckerberg expects the spending will pay off as AI features boost user engagement on Facebook and Instagram, lifting ad sales.
Wedbush analyst Scott Devitt said investor debate has shifted to Meta's 2025 costs. But investors may be left waiting for a clearer picture on Zuckerberg's spending plans for next year.
"Management will not be providing a preliminary 2025 expense outlook alongside 3Q results (unlike prior years) which reduces downside risk during results this week," Devitt wrote in a recent client note. "Quantitative guidance for 2025 expenses and capex will come with 4Q results in February, and while there is uncertainty related to the pace of investment growth next year, we think expectations have appropriately risen in recent quarters."
Devitt rates Meta stock a buy.
Can Zuckerberg Sell The Metaverse?
Investors will also be watching — or bracing — for updates on the metaverse vision that gave the company its new name three years ago.
Zuckerberg's recent demonstration of Meta's Orion augmented-reality glasses generated some positive buzz. And the AI-enabled Ray-Ban smart glasses from Meta have proved a surprise hit.
But the metaverse-focused Reality Labs division still has a ways to go before it can help boost Meta stock. Analysts see Reality Labs losing $4.7 billion for the third quarter on $311 million in sales, according to FactSet. Meta's leadership told investors during the company's second-quarter report that it expects further losses in 2025.
Still, analysts with Morgan Stanley say Meta stock could see some benefit if Zuckerberg can better get investors on board with his long-term vision, headlined by the Orion prototype.
"At current share prices, the market is currently valuing Orion and Reality labs at roughly 20X times -$20 billion ... or -$393 billion," a team of Morgan Stanley analysts led by Brian Nowak wrote to clients Oct. 21. "Even giving this segment (zero value) would add roughly $157/share to the shares (27% upside)."
What Google Results Mean For Meta
Earnings results released Tuesday by some Meta competitors could also bode well for the company. Google, for instance, is the only company with a larger share of the digital advertising market than Meta. The tech giant internet search advertising revenue beat estimates.
"We think strength in the core Search business signals broadly healthy digital advertising trends through 3Q for Meta, Amazon, Pinterest, and The Trade Desk and gives us greater conviction in our near-term estimates," Wedbush's Devitt wrote Tuesday.
Reddit and Snap also posted stronger-than-expected revenue growth.
Meta Stock: Near All-Time Highs
Meta stock broke out on Sept. 19 above a 542.81 consolidation-pattern buy point, according to MarketSurge.
The stock is above the 5% buy zone from the entry. Shares hit a high just above 600 on Oct. 7 before pulling back slightly.
Still, Meta's Relative Strength Rating remains above 90 out of a best-possible 99, a sign of continuing bullishness compared with the rest of the market.
Further, Meta stock shows a strong 97 out of a best-possible 99 IBD Composite Rating, according to the IBD Stock Checkup tool. It is the top-rated stock in the Internet Content industry group tracked by IBD.
