The busiest week of this earnings season is upon us, and tech giants like Microsoft, Apple, Amazon, and Meta Platforms will release their quarterly reports. Notably, it hasn’t been a good earnings season for tech companies so far; Tesla, Netflix, and Alphabet all fell after their Q2 reports. In Alphabet’s case, Google‘s parent fell despite better-than-expected earnings. One plausible reason behind the recent tech sell-off has been the group’s demanding valuations, because these companies need a lot more than merely a “beat” on the headline numbers to justify those premiums.
Amid the fall in tech stocks, Meta Platforms has lost 13% from its 52-week highs and is in the correction zone after having fallen over 10% from the peak. Can Meta – which was the only “Magnificent 7” stock to fall after its Q1 earnings release, and lost $132 billion in market cap in a single day– recoup its recent losses after the Q2 earnings release?
What to Expect from Meta’s Q2 Earnings
Analysts expect Meta to report revenues of $38.3 billion in Q2, a YoY rise of 19.6%. During the Q1 earnings call, Meta Platforms’ management forecast revenues between $36.5 billion and $39 billion for Q2, which – at the midpoint of $37.75 billion – arrived below the $38.3 billion that analysts were expecting.
Consensus estimates call for Meta’s Q2 earnings per share (EPS) to come in at $4.69, which implies a YoY rise of over 45%. Meta’s bottom line has grown at a brisk pace over the last year, thanks to the relentless focus on cost cuts.
Key Factors to Watch
Along with the headline numbers, investors will be watching for the following when Meta reports its Q2 earnings:
- Q3 Guidance: Last quarter, Meta spooked investors with its tepid guidance. All eyes will be on the company’s Q3 guidance when it reports its earnings this week. Consensus estimates call for a 14.7% rise in Meta’s Q3 revenues, while growth is expected to further taper down to 12.6% in the year’s final quarter.
- Chinese Advertisers: Higher ad spend by Chinese advertisers trying to reach consumers in the West has been a key driver of Meta’s top-line growth. With the looming U.S. presidential elections, where Republican candidate Donald Trump has vowed even more tariffs on imports from China, investors will be listening for Meta’s comments on whether it sees any notable changes in the spending trajectory of Chinese advertisers.
- AI Monetization, New Open-Source Model: Last week, Meta released its Llama 3.1 405B, which Mark Zuckerberg termed “the first frontier-level open-source AI model.” He also tried to allay fears over the revenue impact of making the model open source, and said it “doesn’t undercut our revenue, sustainability, or ability to invest in research.” He also stressed that open-source AI models are safe, contrary to what many believe. During the earnings call, Meta might provide more color on the new model, including the timeline for its monetization.
Explosive Take
Meta’s Q2 earnings report will be a make-or-break moment for the company. If it can deliver a strong beat and provide reassuring guidance, it could be the catalyst for a rebound in the stock. However, if it disappoints, it could lead to a further sell-off in the tech sector. With the company’s AI ambitions and ad sales growth under scrutiny, this earnings report will be closely watched by investors. Will Meta rise to the challenge, or will it falter under the pressure? 🤔
