Meta Platforms Q2 Results Preview: Is META Stock Worth Buying After the Drop?

We’ve entered the busiest week of this earnings season, with other tech giants like Microsoft (MSFT), Apple (AAPL), Amazon (AMZN), and Meta Platforms (META) all set to release their quarterly reports this week. Interestingly, it hasn’t been a great earnings season for tech companies so far, with Tesla (TSLA), Netflix (NFLX), and Alphabet (GOOG) all falling after their second-quarter reports.

In the case of Alphabet, Google’s parent company fell despite better-than-expected earnings. One likely reason for the recent tech sell-off was the group’s challenging valuations, as these companies need more than just “beating” headline numbers to justify those premiums.

Amid the tech stock slide, Meta Platforms is down 13% from its 52-week high and is in correction territory after falling more than 10% from its peak. Can Meta — which was the only “Magnificent 7” stock to fall after its Q1 earnings release and shed $132 billion in market cap in a single day — recoup its recent losses after its Q2 earnings release? We’ll discuss that in this article, starting with a preview of what Wall Street is expecting from Facebook’s parent company’s Q2 earnings.

Meta Platforms Q2 Results Preview

Analysts expect Meta to report revenue of $38.3 billion in the second quarter, up 19.6% year over year. During its first-quarter earnings conference call, Meta Platforms management forecast revenue of $36.5 billion to $39 billion for the second quarter, which — based on an average of $37.75 billion — fell short of the $38.3 billion analysts were expecting.

Consensus estimates suggest Meta’s Q2 earnings per share (EPS) will be $4.69, representing year-over-year growth of over 45%. Meta’s continued focus on cost reduction has seen its net income grow at a rapid pace over the past year.

What to look for in Meta’s Q2 results

In addition to the headline numbers, I’d like to point out the following news when Meta releases its Q2 results on Wednesday after the close of trading:

• Q3 Outlook: Meta spooked investors last quarter with its lukewarm outlook. All eyes will be on the company’s Q3 outlook when it reports earnings this week. Consensus estimates are for Meta’s revenue to grow 14.7% in Q3, while growth is expected to slow even further to 12.6% in the final quarter of the year.
• Chinese Advertisers: Higher ad spending by Chinese advertisers trying to reach Western consumers has been a key factor in Meta’s revenue growth. With the U.S. presidential election approaching, in which Republican candidate Donald Trump has announced even higher tariffs on Chinese imports, I’d be interested to hear Meta’s comments on whether it sees any significant changes in the trajectory of Chinese advertiser spending.
• AI Monetization, New Open Source Model: Last week, Meta released Llama 3.1 405B, which Mark Zuckerberg called “the first borderline open source AI model.” He also tried to allay concerns about the revenue impact of making the model open source, saying that it “does not undermine our revenue, sustainability, or ability to invest in research.” He also emphasized that open source AI models are safe, contrary to what many believe. Meta could provide more details about the new model, including a timeline for its monetization, during its earnings conference call.

Meta Stock Forecast: Analysts Turn Bullish Ahead of Q2 Earnings

Wall Street analysts have given Meta a consensus rating of “Strong Buy,” and its $538.76 average price target is 15.7% above last week’s closing prices. Its Street-high price target of $630 is 35.3% above those levels.

Analysts began to gradually gain positive sentiment on Meta ahead of the Q2 report, as Oppenheimer and Bernstein raised their target price for the stock ahead of the confessional session and Morgan Stanley advised buying when the stock was falling.

Is it worth buying Meta shares during a decline?

Meta is undoubtedly facing a number of risks and challenges this year. The potential return of Donald Trump (with his vice presidential nominee, J.D. Vance) is not ideal for the tech giants, and even less so for Meta, as the former president was a vocal critic of the company. Additionally, a crackdown on Chinese imports under Trump could hurt Meta’s revenue from advertisers in China.

That said, AI looks like a near-term opportunity for Meta as the company leverages the technology to boost its revenue. Its investments in the metaverse could also be a game-changer in the long term, even if the company is currently losing billions of dollars every quarter.

From a valuation perspective, Meta is trading at a trailing-12-month price-to-earnings (PE) multiple of 22.3x, which while not particularly high, isn’t particularly enticing either. Overall, I think it makes sense to buy Meta shares on the dip, but not to go all in, given the many headwinds the company faces in 2024.

On the date of publication, Mohit Oberoi held positions in: AAPL, AMZN, META, GOOG, TSLA, MSFT. All information and data in this article is for informational purposes only. For more information, please refer to Barchart’s Disclosure Policy here.