Meta (META) is set to announce its third quarter earnings after the bell on Wednesday, and anticipation is high as the company continues to make waves in the industry.
Investors are particularly interested in two areas that have been a top priority for the parent company of Facebook and Instagram — its AI efforts and its positioning in the digital advertising market, which has been experiencing a prolonged slump but is now showing signs of a rebound.
A key factor in Meta’s advertising and monetization plans this year has been Reels, Instagram’s short-form video feature. This feature has not only driven growth in advertising spend and user engagement, but also generated an impressive $10 billion in revenue in the second quarter.
“We predict a rise in revenue during the second half of 2023 due to the increasing monetization of Reels,” stated TD Cowen’s John Blackledge, who rates the stock at Outperform, on Oct. 13.
In addition to its advertising efforts, Meta has been positioning itself as a leader in AI. The company has introduced various generative AI features targeted towards advertisers and consumers, with a particular focus on Gen Z.
Meta shares have skyrocketed by 150% year to date, outperforming both the S&P 500 and the Nasdaq Internet Index, which have seen gains of around 11% and 34% respectively.
Currently, Wall Street analysts have given Meta 60 Buy ratings, seven Holds, and two Sells.
However, Meta is also facing legal challenges. The company is currently being sued by 42 attorneys general, who allege that Meta’s features targeted at children are addictive.
“We’re disappointed that instead of collaborating with industry companies to establish clear, age-appropriate standards for the apps used by teens, the attorneys general have chosen to take this path,” commented a Meta spokesperson.
The earnings rundown
Here’s a breakdown of what Wall Street expects to see in Meta’s key metrics, according to 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)
Furthermore, all eyes will be on Reality Labs, Meta’s mixed reality business, especially since the launch of the Quest 3 headset. This VR and AR business has faced controversy as it has accumulated significant losses. To date, Meta has lost over $20 billion in running Reality Labs, with $13.7 billion of that coming from 2022. Meta expects these losses to continue.
These expenses serve as a cautious note for Wall Street, but overall sentiment towards Meta remains positive.
“Although concerns about expenses and capex have made the street cautious, the stock’s performance will be driven by the guidance for Q4 revenue, and we expect it to be strong,” wrote Bank of America’s Justin Post, who rates the stock a Buy, on Oct. 20. “We believe the stock has the potential for renewed enthusiasm in 2024, especially with regards to 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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