2024 Q2 Meta Earnings Preview: Is Meta a Good Buy?

This week, major tech companies like Microsoft, Apple, Amazon, and Meta Platforms will release their quarterly reports. So far, it's been a tough earnings season for tech, with Tesla, Netflix, and Alphabet all seeing declines after their Q2 reports. Alphabet, despite better-than-expected earnings, fell due to high valuations needing more than just a "beat" on numbers. Amid this tech downturn, Meta has dropped 13% from its 52-week high. Can Meta recover after its Q2 earnings release? We'll explore Wall Street's expectations for Facebook parent's Q2 earnings.

Q2 Meta Earnings Preview

Meta Platforms, Inc. (META) is set to release its earnings for the fiscal quarter ending June 2024. Analysts expect revenue between $36.5 billion and $39 billion, and an EPS around $4.79, reflecting strong performance and cost optimization.

Key Factors to Watch

A few critical areas will be in focus as Meta releases its earnings report. Firstly, advertising revenue remains the cornerstone of Meta's business model. The company has demonstrated robust growth in ad impressions and the average price per ad in previous quarters. Analysts will closely examine these metrics to gauge ongoing demand and the company’s pricing power in the digital advertising space.

Secondly, investments in AI and the metaverse continue to be significant. These investments are anticipated to drive long-term growth for Meta but are also contributing to increased costs in the short term. How these investments impact the company's profitability and future growth trajectory will be a key area of interest for investors and analysts alike.

Regulatory Pressures

Another critical area is the regulatory environment. Meta faces significant scrutiny in the European Union and the United States. Ongoing regulatory challenges could affect the company's operations and profitability. Updates on how Meta is addressing these challenges will be crucial for investors, as regulatory pressures remain a significant concern.

Recent Performance Highlights

Meta's performance in the first quarter of 2024 set a strong precedent. The company reported revenue of $36.46 billion, up 27.3% year-over-year, and an EPS of $4.71, significantly beating analyst estimates. This strong performance has been reflected in Meta's stock, which has surged approximately 40.2% since the beginning of the year, outperforming the S&P 500's gain of 6.3%. This impressive stock performance underscores investor confidence in Meta's strategic direction and operational strength.

Analyst Sentiment

The sentiment among analysts is generally positive. Many analysts remain bullish on Meta's potential for further monetization, particularly with new ad innovations and AI-driven features. For instance, Citigroup analyst Ronald Josey reiterated a Buy rating with a target price of $590, citing strong advertiser demand and new AI capabilities. However, some analysts, like Roth's Rohit Kulkarni, express cautious optimism. They note that while the overall sentiment remains positive, there are concerns due to tougher year-over-year comparisons and ongoing regulatory uncertainties.

Guidance and Future Projections

Looking ahead, Meta has provided revenue guidance for the next quarter in the range of $36.5 billion to $39 billion, indicating confidence in sustained growth. For the full year 2024, earnings are projected to rise 35% year-over-year to $20.07 per share, with revenue expected to increase by 17.5% to $158.48 billion. These projections highlight the company's strong growth trajectory and its ability to maintain momentum despite challenges.

In summary, Meta Platforms, Inc. is expected to report strong earnings for Q2 2024, driven by robust advertising revenue, strategic investments in AI and the metaverse, and effective cost optimization measures. However, regulatory challenges and increased costs related to new initiatives remain areas to watch closely. Investors and analysts will be keenly observing these factors as they evaluate Meta's future performance and strategic direction.

Risks and Opportunities for Meta in 2024

Meta faces several risks and challenges this year. A potential return of Donald Trump, with JD Vance as his VP pick, is a concern, as Trump has been a vocal critic of the company. Additionally, a crackdown on Chinese imports under a Trump presidency could impact Meta’s revenues from China-based advertisers.

However, AI offers a significant near-term opportunity for Meta, helping to boost revenues. The company’s metaverse investments, despite current losses, could be transformative in the long run.

Meta’s valuation, with a next-12 months PE multiple of 22.3x, is not particularly steep but not overly attractive either. It might be wise to buy the dip in Meta shares, but with caution, considering the various headwinds in 2024.

Conclusion

Meta Platforms, Inc. faces a mix of opportunities and challenges in 2024. AI offers strong revenue potential, and metaverse investments promise long-term growth despite current losses. However, political risks, regulatory pressures, and trade uncertainties present significant hurdles. While Meta's valuation is reasonable, it may be wise to invest cautiously given the diverse headwinds.

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