- Wall Street analysts have high hopes for Meta's third-quarter earnings report on Wednesday.
- Investors are keeping an eye on growth opportunities from AI.
Wall Street analysts are upbeat ahead of Meta's third-quarter earnings report on Wednesday after the closing bell.
Analysts generally expect positive revenue and earnings figures, thanks to the Facebook parent's AI ad optimization and the firm's sweeping cost cuts, which included several rounds of layoffs in recent years and saw the firm backing away from some of its virtual reality projects.
Investors will be keeping a close eye on signs Meta can continue that growth, with the company reportedly working on a new search tool that will surf the web for its AI chatbot.
Wall Street is also looking for strong guidance for the current quarter, though analysts see potential for costs to come in higher than expected.
Here's what analysts are saying ahead of the tech giant's earnings report.
"Long-term story is as strong as ever": Bernstein
Meta's long-run growth trajectory looks solid, according to Bernstein senior analyst Mark Shmulik.
The stock is up 70% this year and is up 550% since bottoming in 2022.
"Near term risk and reward feels balanced," Shmulik wrote in a note, adding that the firm had a "perma-bull position on all things Meta."
"But the long-term story is as strong as ever. As we look ahead we're constructive on the core business with an expected launch of ads on Threads, continued Reels ramp, more AI/Advantage+ ad tools offer investors top-line upside with a potential TikTok ban not currently priced in," he later added.
The firm issued an "Outperform" rating on the stock and a $675 price target, implying 15% upside from current levels.
"Uniquely well positioned to monetize search": JMP
Meta's reported search engine could be a huge positive for the company, JMP analysts said in a note.
"Meta is uniquely well positioned to monetize search given its 200M+ active SMBs and 12M+ active advertisers," the firm wrote. "To that end, we believe Meta could offer a compelling commercial experience for search given its existing advertiser and SMB relationships while also using search intent signal to power its core advertising product on Facebook and Instagram."
The search tool, though, could raise capital expenditures and costs, analysts said, possibly by more than investors are expecting.
The firm issued an "Outperform" rating on the stock and a $635 price target, implying an 8% increase from current levels.
"Top AI pick": Bank of America
BofA analysts expect a "modest" earnings beat from the tech giant on Wednesday. They forecast the firm to report as much as $47.5 billion in revenue, which would represent an 18% year-over-year increase.
Meta is a "top AI pick," the analysts added, pointing to a handful of tailwinds, like strong growth in Meta's AI-powered ads business, continued growth among younger users, and more AI growth opportunities in general.
"Our checks suggest Meta could see strength from: 1) new AI tools and new CRM integration driving higher ROI and incremental ad spend, 2) ramping messaging and Reels monetization, and 3) modest (100-200bps) political ad spend benefit," analysts wrote.
The bank reiterated its "Buy" rating and $630 price target on the stock, implying 7% upside from current levels.
"Clear leader in social media": Morningstar
Meta is a "clear leader" on an "unmatched scale" in the social meaning space, Morningstar said in a recent note, pointing to the firm's 4 billion monthly active users across its applications.
Investors though, are keeping hawkish eye over signs Meta can sustain its growth, according to Dave Sekera, Morningstar's chief US market strategist.
"The market is going to be listening for any update on capex spending, specifically on generative AI. I'd really like to hear from them more specifically about how and when they will be able to monetize that spending. That's the big question for Meta," Sekara said. "Other than that, I'll be listening for an update on growth and digital ads; they had a big benefit from ad spending in Temu and Shein over the past couple quarters, so the question is whether that growth will continue or will it start to slow."
The firm previously issued a 3-star rating for the stock and a fair value of $560, implying 5% downside from current levels.
"A tough bar to surpass": CFRA Research
Meta could face challenges ahead due to the risk that growth decelerated in the last quarter, CFRA Research said.
"META has a tough bar to surpass in upcoming Q4 2024 and Q1 2025. We estimate Q3 growth decelerated to 18% from 22% in Q2 and see further deceleration to 15% in Q4 2024 and 13% in Q1 2025," CFRA senior equity analyst Angelo Zino wrote.
He added that the challenge in the coming quarters will be to keep up with strong growth compared to the year-ago quarters.
"We think year-over-year deceleration is due to lapping strong growth from China-based advertisers as well as strong Reels impression growth from a year ago. Still, we think digital ad trends remain healthy, with broad-based health across most regions and verticals," Angelo Zino, a senior equity analyst at CFRA, wrote.
CFRA raised its price target on the stock to $650 a share, implying 11% upside.