Meta earnings results: Stock climbs as advertising drives revenue beat

2nd quarter

• Revenue: $39.07 billion, +22% y/y, estimate $38.34 billion

  • Advertising revenue: $38.33 billion, +22% y/y, estimate $37.57 billion
  • Family of Apps revenue: $38.72 billion, +22% y/y, estimate $37.76 billion
  • Reality Labs revenue: $353 million, +28% y/y, estimate $376.9 million
  • Other revenue: $389 million, +73% y/y, estimate $344.6 million

• Operating income: $14.85 billion, estimate $14.59 billion

  • Family of Apps operating income: $19.34 billion, +47% y/y, estimate $18.69 billion
  • Reality Labs operating loss: $4.49 billion, +20% y/y, estimate loss $4.53 billion
• Operating margin: 38% vs. 29% y/y, estimate 37.7%
• EPS: $5.16 vs. $2.98 y/y, estimate $4.72
• Ad impressions: +10% vs. +34% y/y, estimate +13%
• Average price per ad: +10% vs. -16% y/y, estimate +5.96%
• Average Family service users per day: 3.27 billion, +6.5% y/y, estimate 3.22 billion

Third quarter

• Revenue: $38.5 billion to $41 billion, estimate $39.16 billion

Full-year 2024

• Capital expenditure: $37 billion to $40 billion, saw $35 billion to $40 billion, estimate $37.53 billion
• Total expenses: $96 billion to $99 billion, estimate $97.73 billion

Meta stock rose about 2.3% in intraday trades on Wednesday, slightly behind the Nasdaq 100's gain of about 2.7%.

Meta stock has been a roller coaster ride for investors this year.

While the stock is up 34% year-to-date, more than double the Nasdaq 100's gain of about 15%, it's down 13% since it hit a record high on July 8 and it experienced a one-day decline of more than 10% after it reported first-quarter earnings in April.

A solid advertising environment should help Meta deliver better-than-expected second-quarter earnings and revenue, according to a recent note from Citi.

"Our 2Q advertising checks and time at Cannes suggest that the broader online advertising market is healthy and strengthening," Citi analyst Ronald Josey said.

"We'll be watching for continued engagement benefits from Meta's investments in AI content discovery, adoption of newer monetization tools, early progress from the beta launch of AI studio, potential benefits from Llama 3.1, and profitability. Meta remains our top-pick across our coverage," Josey said.

Citi has a "Buy" rating on Meta with a $550 price target.

Wells Fargo raised its second-quarter estimates in a recent note as its internal checks suggests solid ad performance from the company.

"Checks suggest noticeable ad targeting and efficiency improvement in 2Q despite meaningful CPM growth acceleration," Wells Fargo analyst Ken Gawrelski said.

The bank also expects Meta to maintain its prior capital expenditures guidance of $35 billion to $40 billion for the year.

"Given the unfavorable market reaction to 1Q mgmt commentary on potential revenue displacement due to scaling of newer AI products, believe investors will welcome further framing of potential impact," Gawrelski said.

Wells Fargo has an "Overweight" rating on Meta with a $625 price target.

Mizuho said in a recent note that investor concerns about Meta's massive investment cycle has kept Wall Street expectations "in check."

But that means overall expectations may prove to be too conservative.

"We believe risk/reward appears positive on Meta into the print with solid 2Q24 ad agency tracking, achievable 3Q24 expectations, and flexibility in opex to manage raising capex," Mizuho analyst James Lee said.

"At the same time, we view consensus FY24 growth of 17% conservative with improved ad pricing growth from Reels, Amazon's integration into FB shops, and special events revenue growth," Lee added.

Mizuho has an "Outperform" rating on Meta with a $575 price target.

The upcoming Presidential election and its related advertising spend should benefit Meta in a big away, according to Bloomberg Intelligence analyst Mandeep Singh.

"Meta's impressions and user growth may taper with ad pricing and election-ad spending to be key drivers for surpassing consensus sales growth expectations of 20% in 2Q," Singh said in a recent note.

The company also has the potential to offer guidance on the monetization potential of its licensing of Llama, its open-source large language model.

"Though Meta's positioning remains strong in gen AI, a top-line lift from licensing its Llama model to enterprise customers and adoption of subscription chatbot offerings, similar to OpenAI and Gemini Advanced, will be a key focus on the earnings call," Singh said.

Bank of America said in a recent note that it expects Meta to meet or slightly beat Wall Street's expectations for second-quarter revenue, and beat profit estimates.

"With job openings down in 2Q, we don't anticipate a repeat of last quarter's higher '24 expense guidance, though higher legal and capex are risks," Bank of America analyst Justin Post said.

Looking forward, Post highlighted that a potential TikTok ban in early 2025 could provide a big boost to Meta's advertising business.

"With political spend, and potential TikTok ban in 1Q'25, Meta could also see an ad spend benefit in 2H'24," Post said.

Bank of America has a "Buy" rating on Meta with a $550 price target.

2nd quarter

• Revenue estimate: $38.34 billion

  • Advertising rev. estimate: $37.57 billion
  • Family of Apps revenue estimate: $37.76 billion
  • Reality Labs revenue estimate: $376.9 million
  • Other revenue estimate: $344.6 million

• Operating income estimate: $14.59 billion

  • Family of Apps operating income estimate: $18.69 billion
  • Reality Labs operating loss estimate: $4.53 billion
• Operating margin estimate: 37.7%
• EPS estimate: $4.74
• Ad impressions estimate: +13%
• Average price per ad estimate: +5.96%
• Average Family service users per day estimate: 3.22 billion

Third quarter

• Revenue estimate: $39.17 billion

Full-year 2024

• Total expenses estimate: $97.73 billion
• Capital expenditure estimate: $37.57 billion