'Reels is outperforming TikTok': Here's what Wall Street expects from Meta's 3rd-quarter earnings

• Meta is scheduled to report third-quarter earnings on Wednesday after the market close.
• Investors are trying to gauge the current health of the digital advertising market via Meta's results.

All eyes are on Meta Platforms as it is scheduled to report its third-quarter earnings on Wednesday after the market close.

Analysts are focused on the company's success in battling rival TikTok via its short-form video product Reels, as well as the current state of the digital advertising market after its weak showing in 2022.

Meta has a lot on the line given that its stock has seen massive gains and is one of the best performing mega-cap tech giants this year. Shares are up 161% year-to-date and up 256% from 52-week lows.

Here are forecasts for Meta's financials, according to data from Bloomberg:

• Revenue: $33.52 billion
• Adjusted earnings per share: $3.70 per share
• GAAP earnings per share: $3.59
• Gross margin: 80.7%

Investors will also be listening for any post-earnings commentary on artificial intelligence, sales expectations for new headsets like the Quest 3 and Ray-Ban Meta smartglasses, and the "year of efficiency" cost-savings initiatives.

This is what analysts are saying about the upcoming report.

UBS: 'Reels is outperforming TikTok'

UBS said its channel checks "indicate that Reels is outperforming TikTok with lower CPMs and much improved engagement," adding that Instagram and Facebook's share of US app downloads is catching up to TikTok.

During Meta's conference call, analysts hope to get updates regarding long-term spending plans, the revenue runrate for newer products like Click-to-Message ad formats and Meta Verified subscriptions, and the monetization timeline for generative AI chatbots.

"We think the GenAI consumer app bull case is still under-appreciated and not priced into shares. We think more disclosure on GenAI product uptake and eventual monetization could bolster confidence in the durability of top line growth, driving multiple expansion," UBS said in a recent note.

UBS rates Meta "Buy" with a $415 price target, representing potential upside of 32%.

Morningstar: 'Hopefully more efficient operations'

Morningstar is focused on whether Meta delivers on its commitment to cutting costs and getting more efficient. The research firm said management has to delicately balance cuts with the need to invest heavily in AI.

"We'd like the firm to discuss its latest plans for the metaverse, and whether it will relaunch with its aggressive investments on that front. We think artificial intelligence is an important component of the metaverse," analysts added.

Morningstar gives Meta a 3-star rating and a fair value estimate of $311, representing potential downside of 1%.

Goldman Sachs: 'Revenue growth remains on a re-acceleration trajectory'

Meta offers a positive risk/reward profile heading into earnings, and its "revenue growth remains on a re-acceleration trajectory," according to a recent note.

"The stock is inexpensive on forward price-to-earnings multiples and management has reset the cost base to align with a mixture of compounded earnings growth while also maintaining a robust investment cadence in long-term initiatives such as AI and the metaverse," Goldman Sachs said.

The bank rates Meta at "Buy" with a $384 price target, representing potential upside of 22%.

JPMorgan: 'Ad checks have been positive'

Solid advertising revenues should enable Meta to beat on revenue and profit, according to a recent note.

"We like Meta and believe valuation remains compelling... For Q3 specifically, ad checks have been positive, both from a macro perspective and in terms of Meta-specific initiatives like Advantage+, Reels, and Click-to-Message ads," JPMorgan said.

JPMorgan rates Meta at "Overweight" with a $324 price target, representing potential upside of 3%.

Bank of America: 'Reels and AI should aid 3Q growth'

Analysts said solid fourth-quarter guidance and commentary on Reels could drive further upside to Meta's stock.

"Our checks suggest Meta is benefitting from improving digital ad market, ramping Reels monetization and improving AI driven ad measurement," Bank of America said in a recent note. "Reels and AI should fuel third-quarter growth."

The bank expects Meta to guide fourth-quarter revenue high and sees 2024 total expenses of around $100 billion.

BofA rates Meta at "Buy" with a $375 price target, representing potential upside of 19%.