META Preview: High Hopes for Upcoming Earnings Amid AI Furor

The market has high expectations for META's upcoming earnings report as interest in AI remains strong.

Time for Rebound?

META's stock price hit an all-time high of $531.43 in April this quarter, one of the genuinely Magnificent Seven earning the status. However, it has since declined some $50 ahead of its earnings release on the 24th, parallel to the broader market softening. Notably, several analysts have upgraded their price targets for the company. An interesting case is the one of UBS. UBS maintained its buy rating and hiked its price target to $610 per share from $530. However, the new target reflects a 22 multiple of the company's EPS estimate ending March 2026, and this may be setting a high bar already.

Analyst consensus estimates point to 63.6% growth in Q1 EPS to $4.32 compared to last year. They also expect a buoyant 35.7% revenue growth to $20.2 billion. Increased ad revenue, focused on META's AI-powered Advantage+ ad sales program, is expected to drive these projections. This would follow similar top and bottom lines growth last quarter, though earnings may pull back slightly compared to the prior quarter, as Q4 2023 benefited largely from year-end ad spend.

Keeping Up Pace?

It may be difficult for META to match the investor enthusiasm of last quarter's triple-digit earnings growth, accompanied by initiating a dividend as the first major social media company. As such, investors will likely focus on guidance to see if recent ad revenue growth can be sustained. Some analysts worry last quarter's rate marked a peak for digital ad spending, which could impact upcoming results.

Updates on AI integration could generate interest, particularly regarding search and recommendations. This may include details on META's latest custom AI chip MTIA, Next Gen META Training and Inference Accelerator, and whether the firm can reduce reliance on NVIDIA. Investors may also seek commentary on Chinese e-commerce giants' META playbook and maintaining margin expansion.​

Bounce or Slide

META's corrective phase may take longer than expected, considering the three months in the second half of 2023 between $275 and $330. While the prior drop equated to a 17% drop, the current correction has only fallen by 11%. Still, $480 appears to be providing resistance for now, following rejection at the upward channel's upper trendline.

If support holds, the price could accelerate back towards the top of the range and potentially get a boost to $550 or $600. Alternatively, continued weakness, seeing prices slide within the channel's trend, may allow META to decline towards $390 should resistance at $450 and $400

Source: SpreadEx / META

Key Takeaways

Meta's stock price declined before its earnings release as the broader market softened, with analysts having high expectations following strong AI interest and revenue growth last quarter. Investors will likely focus on guidance to determine if recent ad revenue growth can be sustained or if the previous quarter marked the peak. Updates on AI integration and reducing reliance on NVIDIA through new custom chips could also generate interest.​