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Wall Street analysts have high hopes for Meta’s third-quarter earnings report on Wednesday.
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Investors are keeping an eye on growth opportunities from AI.
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Bank of America has said the stock is a top AI pick.
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 sweeping cost cuts, which have included several rounds of layoffs and a retreat from some of its virtual-reality projects.
Investors will be watching for signs that Meta can continue growing. The company is reportedly working on a search tool for its AI chatbot.
Wall Street is also looking for strong guidance for the current quarter, though analysts think costs could come in higher than expected.
Here’s what analysts are saying ahead of the tech giant’s earnings report.
Mark Shmulik, a senior analyst at Bernstein, thinks Meta’s long-run growth trajectory looks solid.
The stock is up by 70% this year and is up by 550% from its low 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,” he added. “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.”
The firm issued an “outperform” rating on the stock and a $675 price target, implying 15% upside from current levels.
JMP analysts said in a note that the search engine could be a huge positive for Meta.
“Meta is uniquely well positioned to monetize search given its 200M+ active SMBs and 12M+ active advertisers,” they said. “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.”
But they said the search tool could raise capital expenditures and costs, 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.
Bank of America analysts said they expect a “modest” earnings beat from the tech giant on Wednesday. They forecast a report of 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,” the analysts wrote.
The bank reiterated its “buy” rating and $630 price target on the stock, implying 7% upside from current levels.
In a note last month, Morningstar described Meta as a “clear leader” on an “unmatched scale” in social media, pointing to the firm’s 4 billion monthly active users across its apps.
But Dave Sekera, Morningstar’s chief US market strategist, said investors were keeping a hawkish eye on whether Meta can sustain its growth.
“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,” Sekera said.
“Other than that,” he added, “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 three-star rating for the stock and a fair value of $560, implying 5% downside from current levels.
CFRA Research said Meta could face challenges because of the risk that growth decelerated in the last quarter.
Meta “has a tough bar to surpass in upcoming Q4 2024 and Q1 2025,” Angelo Zino, a senior equity analyst, wrote. “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.”
He added that the challenge in the coming quarters would be to keep up with strong growth compared with 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,” Zino wrote. “Still, we think digital ad trends remain healthy, with broad-based health across most regions and verticals.”
CFRA raised its price target on the stock to $650 a share, implying 11% upside.
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