The third quarter earnings season is well underway, and major tech companies like Meta Platforms (NASDAQ:META), Alphabet (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT), and Amazon (AMZN) are set to release their earnings reports this week.
Meta has been a standout performer this year, with a year-to-date gain of over 162%. It has not only outperformed its FAANG counterparts by a significant margin but is also the second-best performing stock in the S&P 500 Index ($SPX), trailing only Nvidia (NASDAQ:NVDA), which has nearly tripled in value thanks to the AI boom.
Meta has surprised the market with strong earnings and guidance in both the first and second quarters of 2023. As we approach the release of Meta’s Q3 report on October 25, investors are eagerly awaiting the results and anticipating whether the positive trend will continue.
Here’s a breakdown of what Wall Street expects from Meta’s Q3 report, along with the seven key areas to watch closely when the Mark Zuckerberg-led company unveils its earnings:
1. Commentary On The Digital Advertising Market
Strong growth in the digital advertising market significantly contributed to Meta’s better-than-expected Q2 earnings. With global macroeconomic conditions becoming less favorable due to events like the Israel-Hamas conflict and the U.S. Federal Reserve signaling higher interest rates, Meta’s insights on the digital advertising market will be closely scrutinized. A slowdown in this sector could have implications not only for Meta but also for other social media companies.
2. Ad-Free Version in Europe and Other Geographies
Meta has faced regulatory scrutiny, particularly in Europe, due to its data collection and targeted ad policies. The company is reportedly considering a paid, ad-free tier in Europe to address these concerns. The Q3 earnings call may provide insights into this proposal and its potential expansion to other regions.
3. Reels Monetization
In the Q2 2023 earnings call, Meta revealed that its short video format, Reels, had an annual revenue run rate of $10 billion, marking a significant increase over the past year. Investors will be keen to hear about the progress in monetizing Reels during the Q3 earnings call.
4. Impact of AI on Meta’s Earnings
Meta has emphasized the use of its AI products, with nearly all advertisers on its platform employing them. Mark Zuckerberg sees AI as a key driver in the short term, making management’s commentary on the AI opportunity a focal point during the Q3 earnings call.
5. Q4 Revenue Guidance
Meta’s forward guidance has been impressive in recent quarters. Analysts are expecting a nearly 21% increase in revenues for Q4. Meta’s guidance for Q4 will play a crucial role and could significantly influence the stock’s post-earnings performance.
6. What’s Next for Meta After the “Year of Efficiency”
2023 was dubbed the “year of efficiency” by Zuckerberg, and Meta implemented extensive cost-cutting measures and reduced headcount. However, the strategies that helped Meta recover from its 2022 losses might need reevaluation. The company anticipates increased payroll and operating expenses in 2024. The Q3 earnings call may shed light on the factors that will drive Meta’s performance in 2024.
7. Reality Labs Losses
Meta Platforms’ Reality Labs segment, responsible for developing the metaverse, has been incurring substantial losses. The company expects these losses to “increase meaningfully” in 2024. The Q3 earnings call will likely provide insights into the Reality Labs segment, including its 2024 operating loss guidance and long-term trajectory.
Meta Stock Forecast
Despite Meta’s strong stock performance, Wall Street analysts anticipate further gains for the company. The mean target price is $366.08, suggesting a 16% increase over current prices.
Meta has received a “Strong Buy” rating from 34 of the 37 analysts covering the stock, while two rate it as a “Moderate Buy.” Only one analyst has assigned a “Strong Sell” rating to the stock.
Following Meta’s Q2 earnings release, several analysts raised their target prices. Analysts are expected to further adjust their target prices based on Meta’s Q3 results, provided the company can impress with its earnings and outlook for Q4.
Featured Image: Unsplash
Author Faith Yakubu 
