Meta Platforms ahead of Q2 2024 earnings

Today, Meta Platforms (META.US), formerly known as Facebook, is set to announce its Q2 2024 results. Investors will be closely watching several key areas: the performance of the advertising segment, the uptake and effects of new AI products, and the company's profit margins amid high capital expenditures. Meta has already adjusted its annual capital spending forecast for 2024 to $35-40 billion, bringing the total capital expenditures to between $96-99 billion. In Q1, the company exceeded revenue expectations and surpassed earnings per share forecasts by nearly 10%, yet its stock declined by almost 16% following those results. The market will be eager to see if a similar pattern will emerge this time around and whether Meta will adjust its forecasts upward.

Business and AI

The market will be focused on how and to what extent Meta's use of AI translates into tangible business benefits. In Q1, AI-driven suggestions on Instagram Reels led to an 8-10% increase in time spent watching videos and ads. Investors are also looking for insights on how the Llama 3 model will impact the development of "virtual worlds," a recent initiative announced by Mark Zuckerberg.

• In Q1 2024, Meta reported purchasing approximately 600,000 H100 chips from Nvidia. The semiconductor market will be watching to see if Meta made additional chip purchases in Q2, as a lack of new acquisitions might indicate a reduced appetite for expensive AI investments.
• According to Citi and Wells Fargo, the global ad market showed improvement in Q2, which is expected to benefit Meta first. Wells Fargo anticipates that Meta will uphold its capital spending forecast of $35-40 billion for 2024.
• Mizuho Securities remains optimistic about Meta's valuation, noting that Wall Street's cautious stance is partly due to uncertainty around the profitability of the company's large investments.
• Analysts are also hopeful for increased revenue from licensing the Llama model to corporations and the adoption of subscription-based chatbot AI tools, similar to offerings from OpenAI and Gemini.
  

Wall Street is taking a more skeptical view of how much is being spent on AI by tech firms and when it will start to pay off in terms of improved growth and profitability. The Facebook parent already irked investors in April by hiking its spending forecast above estimates. Microsoft shares slid 1% on Wednesday after it reported slower growth in its cloud computing unit and said capital expenditures would increase again in the next fiscal year.

“The key question is whether Meta takes capex up even more,” said Denny Fish, who manages the $7.2 billion Janus Henderson Global Technology and Innovation Fund. “The demand environment is pretty good, revenue trends have been strong, and the valuation is still reasonable. However, it sold off last quarter, when things were pretty pristine except for capex, which shows you how much investors are concerned about this.”

Shares of Meta

Shares of Meta Platforms have risen 31% this year, outpacing its peers, partly due to its relatively low valuation. Meta is trading at roughly 21 times projected earnings, which is below the Nasdaq 100’s multiple of 25 times. However, the stock has recently declined as part of a broader sector rotation, and any misstep in spending could exacerbate the selloff. Options data suggests an implied one-day price movement of approximately 8.8% in either direction following the results.
Analysts anticipate that Meta will report $9.5 billion in capital expenditures for the quarter, a 50% increase from the same period last year, with full-year capex projected to reach nearly $38 billion, according to Bloomberg. Net earnings per share are expected to grow by 59% this quarter, with revenue forecasted to rise around 20%.

“We currently expect significant capital expenditures growth in 2025 as we invest to support our artificial intelligence research and product development efforts,” the company wrote in its earnings report. It also warned of “an active regulatory landscape, including the increasing legal and regulatory headwinds in the EU and the U.S. that could significantly impact our business and our financial results.”

When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.

Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.